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Second-generation student borrowers

by Ariane de Gayardon

Since the 1980s, massification, policy shifts, and changing ideas about who benefits from higher education have led to the expansion of national student loan schemes globally. For instance, student loans were introduced in England in 1990 and generalized in 1998. Australia introduced income-contingent student loans in the late 1980s. While federal student loans were introduced in the US in 1958, their number and the amount of individual student loan debt ramped up in the 1990s.

A lot of academic research has analysed this trend, evaluating the effect of student loans on access, retention, success, the student experience, and even graduate outcomes. Yet, this research is based on the choices and experiences of first-generation student borrowers and might not apply to current and future students.

First-generation borrowers enter higher education with parents who have either not been to higher education, or who have a tertiary degree that pre-dates the expansion of student loans. The parents of first-generation borrowers therefore did not take up loans to pay for their higher education and had no associated repayment burden in adulthood. Any cost associated with these parents’ studies will likely have been shouldered by their families or through grants.

Second-generation borrowers are the offspring of first-generation borrowers. Their parents took out student loans to pay for their own higher education. The choices made by second-generation borrowers when it comes to higher education and its funding could significantly differ from first-generation borrowers, because they are impacted by their parents’ own experience with student loans.

Parents and parental experience indeed play an important role in children’s higher education choices and financial decisions. On the one hand, parents can provide financial or in-kind support for higher education. This is most evident in the design of student funding policies which often integrate parental income and financial contributions. In many countries, eligibility for financial aid is means-tested and based on family income (Williams & Usher, 2022). Examples include the US where an Expected Family Contribution is calculated upon assessment of financial need, or Germany where the financial aid system is based on a legal obligation for parents to contribute to their children’s study costs. Indeed, evidence shows that parents do contribute to students’ income. In Europe, family contributions make up nearly half of students’ income (Hauschildt et al, 2018). But the role of parents also extends to decisions about student loans: parents tend to try and shield their children from student debt, helping them financially when possible or encouraging cost-saving behaviour (West et al, 2015).

On the other hand, parents transmit financial values to their children, which might play a role in their higher education decisions. Family financial socialization theory states that children learn their financial attitudes and behaviour from their parents, through direct teaching and via family interactions and relationships (Gudmunson & Danes, 2011). Studies indeed show the intergenerational transmission of social norms and economic preferences (Maccoby, 1992), including attitudes towards general debt (Almenberg et al, 2021). Continuity of financial values over generations has been observed in the specific case of higher education. Parents who received parental financial support for their own studies are more likely to contribute toward their children’s studies (Steelman & Powell, 1991). For some students, negative parental experiences with general debt can lead to extreme student debt aversion (Zerquera et al,2016).

As countries globally rely increasingly on student loans to fund higher education, many more students will become second-generation borrowers. Because their parents had to repay their own student debt, the family’s financial assets may be depleted, potentially leading to reduced levels of parental financial support for higher education. This is likely to be even worse for students whose parents are still repaying their loans. In addition, parental experiences of student debt could influence the advice they give their children with regard to higher education financial decisions. As a result, this new generation of student borrowers will face challenges that their predecessors did not, fuelled by the transmitted experience of student loans from their parents (Figure 1).

Figure 1 – Parental influence on second-generation borrowers

As the share of second-generation borrowers in the student body increases, the need to understand the decision-making process of these students when it comes to (financial) higher education choices is essential. Although the challenges faced by borrowers will emerge at different times and with varying intensity across countries — depending in part on loan repayment formats — we have an opportunity now to be ahead of the curve. By researching this new generation of student borrowers and their parents, we can better assess their financial dilemmas and the support they need, providing further evidence to design future-proof equitable student funding policies.

Ariane de Gayardon is Assistant Professor of Higher Education at the Center for Higher Education Policy Studies (CHEPS) based at the University of Twente in the Netherlands.


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Why are governments cancelling student debt?

by Héctor Ríos-Jara

Governments across the globe are increasingly adopting student debt cancellation or forgiveness policies. Recent proposals in the US, Chile, and Colombia have reignited discussions about the student loan crisis and the need for alternative funding solutions in higher education. But why are governments pursuing these policies, and what does it mean to cancel student debt?

The demand for student debt cancellation emerged in the wake of the 2008 financial crisis, a time of economic hardship for many households burdened by high-risk loans. While banks and financial institutions received massive bailout packages, ordinary citizens faced mounting debts with little relief. This stark disparity fuelled a movement for a general “jubilee” or widespread debt forgiveness. The logic was simple: if banks could be saved from their financial burdens, why not the people?

Cities like New York, London, Madrid, and Athens became centres of protest against government policies that seemed to protect the financial elite while ignoring the needs of ordinary citizens. In the US, the Occupy Wall Street movement became the focal point for debtors, calling for cancelling all debts, including student loans. Similar anti-austerity movements erupted worldwide, with student protests in countries like the UK, Chile, Colombia, Quebec, and South Africa challenging tuition hikes and market-driven education policies. These movements also pushed for free education and an end to student loans (Cini, 2021).

In this climate of widespread discontent, the call to cancel student debt became a symbol of resistance against the rising cost of education and overwhelming debts. Activists argue that student debt not only increases the financial burden of higher education but also undermines social mobility. For many, student loans trap them in a cycle of debt that limits their opportunities and financial freedom.

Initially, debt cancellation was seen as a radical proposal outside mainstream education policy. Even some progressive movements, such as Corbynism in the UK, hesitated to endorse full debt forgiveness, opting instead for free education and the restoration of grant systems[i]. However, the 2020s saw a dramatic shift, with countries like the US, Chile, and Colombia making debt forgiveness a central policy issue.

In the United States, President Joe Biden has introduced two major plans for student debt forgiveness. His latest proposal includes forgiving $10,000 in federal student loans for most borrowers and up to $20,000 for lower-income debtors (Rios-Jara, 2022). The plan also includes the SAVE plan, which ties repayments to borrowers’ incomes, marking the most significant reform to the American higher education system since Obama’s presidency. Despite legal challenges that have stalled these initiatives, the government has already forgiven $143.6 billion in student loans for nearly 4 million borrowers[ii].

In Chile, President Gabriel Boric, a former student leader, promised to introduce a comprehensive debt forgiveness policy. His government recently unveiled a plan to cancel a portion of student debt, ranging from $500 to $3,000 USD for all borrowers with government-backed loans, based on their academic success and if the are in default or not[iii]. This proposal aims to eliminate the participation of commercial banks in the student loan system and replace it with an income-based contribution system. This reform reduces overall debt and ensures education is more accessible. The plan expects to erase all debt for approximately 20% of borrowers. In total the plan will eliminate 65% of total loan debt, being biggest cancellation debt package ever probed.

Both governments have justified their debt cancellation efforts by highlighting the crippling effects of student debt on graduates. Many borrowers find themselves unable to pay off their loans due to stagnant wages and high monthly payments, preventing them from investing in long-term life goals. In the US, there are 45 million student debtors, holding a collective debt of $1.753 trillion[iv]. In Chile, 2 million borrowers owe a total of $12 billion[v], and it is one the countries with the biggest student debt in Latin America.

Debt also exacerbates social inequality. In both countries, graduates from low-quality institutions with predatory lending practices are often left with larger debts and lower earnings, making them more likely to default. In the US, advocates argue that student debt disproportionately affects students of colour, limiting their upward social mobility. In Chile, the government has emphasised the gender dimension of the issue, as women—who represent the largest group of debtors—face a significant wage gap, making it harder to repay their loans and fully benefit from higher education.

In Chile, the government has also framed debt cancellation and loan reform as a matter of efficiency, addressing the failure of the current system to improve repayment rates. Similar to the US, Chile’s loan system relies on government-backed loans involving commercial banks. However, the anticipated efficiency from bank involvement has not materialised, with only 55% of borrowers keeping up with payments. The proposed reforms will remove banks from the equation and return financial aid administration to public institutions, as the US did under Obama’s 2011 reforms to federal student loans.

Debt cancellation policies represent a relevant attempt to rectify these long-term challenges, but questions remain about their effectiveness and whether more comprehensive alternatives are needed to tackle the broader failures of market-driven higher education systems. For instance, activists have criticised Joe Biden’s plans for maintaining a loan-based system rather than pushing for a more transformative reform that includes free education. In this debate, one distinctive feature of President Boric’s proposal is the complete elimination of student loans, replacing them with an income contingent graduate contribution system.

Graduates’ contributions are calculated based on the length of their studies and their annual income. The approach combines the flexibility of income-contingent loans with an updated version of a short-term graduate tax. What each graduate contributes will be determined not by the cost of their degree but by their ability to contribute based on their income. Under this mechanism, individual debt will be erased, and loans will stop being issued, moving the higher education system into a new stage where free education and graduate contribution are the main columns of student financial aid. 

Whether debt cancellation will fully resolve these issues remains to be seen, but it marks a significant shift in how governments are addressing the unintended consequences of student loan systems. The push for debt forgiveness reflects not just an ideological critique of neoliberal policies but the frustrations of millions of graduates struggling under the weight of unmanageable debt. They feel betrayed by broken promises of social mobility and fearful of the financial uncertainty that student loans have brought into their lives. To face these issues, governments with a long history of student loans are looking for new ways of funding higher education, moving beyond market solutions and looking for new forms of higher education public funding policies that leave behind market instruments but also the traditional policies of public education.

Héctor Ríos-Jara has a PhD in Social Sciences from University College London (UCL). He works as a postdoctoral researcher at the Economic and Society Research Center (ESOC) of Universidad Central de Chile.

[i] Rios-Jara, H. (2022). Between Movements and the Party: Corbynism and the Limits of Left-Wing Populism in the UK. Populism, Protest, New Forms of Political Organisation. A. Eder-Ramsauer, S. Kim, A. Knott and M. Prentoulis, Nomos. 2: 130-149.

[ii] https://www.ed.gov/about/news/press-release/biden-harris-administration-approves-additional-58-billion-student-debt

[iii] https://www.gob.cl/noticias/ley-fin-al-cae-presidente-presenta-principales-alcances-proyecto/

[iv] https://educationdata.org/student-loan-debt-statistics

[v] Subsecretaría de Educación Superior (2022). Primer Informe del Crédito con Aval del Estado (CAE): Características de la población deudora e impactos.