In my last blog post I had some doubts over the popular economic punditry’s claim that more young adults living at home is due to the increasing reliance on student loans. There are large scale changes in marital status and demographics that also important. I do think that reframing the question to whether student debt causes parental co-residence is valid. In fact, I think parental co-residence is part of the consumption smoothing used by college graduates who face borrowing constraints. Outside standard life-cycle model, I think credit constraints and debt averse behaviour are likely contributing factors.
There are some interesting papers on the subject. Looney and Yannelis (2015) at the Brookings Institute investigate the characteristics that drive default rates. In their analysis of course is the discussion on the burden 2-year community colleges and for-profit colleges share for the increased default rate since 2000. This isn’t really on topic but in Avery and Turner (2012) and a quick look through the Department of Education’s student loan data for default rates shows that the schools classified as for-profit tend to have exceptionally high default rates. Most statistical evidence shows public and private 4 year universities have a substantially smaller default rate. While the popular discussion ignores the difference amongst schools, it is very important for any future policy goal to understand difference amongst institutions. As an investment, attending a 4 year program (as discussed in the last post) remains a “good” deal (leaving this vague due to heterogeneity amongst students).
Back to the question at had, do student loans (or rather the debt) cause parental co-residence post graduation? Bleemer et al. (2015) find evidence of causality using the Federal Reserve Bank of New York’s Consumer Credit Panel. They use the panel and local factors such as housing price, employment rate and student debt in local college. Another paper by Dettling and Hsu (2016) is similar but for the consideration of credit risk and payment delinquency as part of the inquiry in place of considering geographical factors for individuals after a period of independent living. Dettling and Hsu are really interested in the consumption smoothing of young adults post-graduation. Dettling and Hsu find that change in debt portfolios of young adults contributed 32 percent of increases in co-residence with parents between 2005 and 2013.
This leads to me to question my results from my last post. There will be an addendum to them. I believe I already mentioned they were in hast. It’s a good time to remind any readers, that if anything, this blog is me thinking out loud. Nonetheless, the information above, particularly Bleemer et al (2015), is very important and I recommend reading it. On economic situations and living arrangements I recommend Kaplan (2012).