Let’s get more Finance into Education Finance (AKA, why aren’t more Finance academics studying Education Finance?) – Part 1

Why is there such a stunningly low level of academic finance research into student debt and education finance? How can we change that?


It has been about a year since I started working in the field of student loans. However, the same thought keeps coming back to me…. why aren’t more financial economists interested in this area. Based on the metrics I show below, this area is vastly underrepresented in Finance research. All this is even more surprising given the headline number of $1.4 Trillion in total outstanding student loans (If you really want to get scared, look at the student debt clock posted here). I will speculate on some reasons, and then I will see how we go about fixing this (in the next part).

First, the fun part… data! I obtain the number of SSRN papers that have the term “student loan”in title, abstract, and keywords (Could not figure out whether SSRN supports boolean searches with “OR”…help!). Also, searching for “education finance” gets similar numbers. I also obtain similar number of studies for the Financial economics network (FEN). I do the same for IPOs (search term “IPO”) and acquisitions (search term “acquisition”).

I then obtain the total market stock of student loans in the US from the Federal Reserve Bank of New York Consumer Credit/Equifax data for the time period 2007 to 2015. I do similar calculations for IPOs from Renaissance Capital web page. I finally get similar data on acquisitions from SDC M&A database. It is all a bit rough, but good enough for our purposes.

Figure 1: Academic research compared to market size.

Looking at Figure 1 above, which maps out all this data, I think we can infer that when 20 times more attention is paid to the IPO area which has a  market size that is one-third of that of student loans, there is something out of whack. Of course, we can argue that market sizes don’t really tell us the actual economic importance of a field, but even conceding that, a reasonable person can agree that there is a disparity. This gets worse when one only looks at the finance part of SSRN.

Another way of thinking about this is how many studies are there relative to the stock of market (again measured between 2007 and 2015). Figure 2 shows that finance studies for each Billion dollar market unit is 0.076 for student loans, and 5.54 for IPOs. The same number is 0.21 for M&A – which is still three times the the student loan market. These numbers are all subject to caveats and ifs-and-buts, but many people are likely to agree that it reflects a real disparity.

Figure 2: More evidence on studies relative to market size

By the way, I have nothing against people who want to work on IPOs or M&A – two fields, coincidentally, that I also work on! I merely point out certain disparities that I feel should be corrected. Corporate and investment markets are and should be important for financial economists, but so should a major market that affects human capital, broad economic growth, potential tax policy, and welfare.

What is the problem? Why aren’t we doing more in this area.I suspect some of this is the lack of “sexiness” of this area that more interesting topics like innovation or IPOs have. The other is the lack of blog posts like this ;-). Or rather, a broader degree of acceptance of household finance in the profession. I see that is changing, but more slowly than I would like. So I would like help that process along.

So let me suggest how I would approach this task. If a PhD student in finance came to me and said, how do I pick a topic to do research on, these are some of the criteria I would recommend. Then I point out whether student debt satisfies some of this criteria (forthcoming in part 2).

  • Is the topic important? Do academics, practitioners, and policymakers care? Will it have a contribution on a large and important issue of the day? Can it be timely?
  • Is there data to do this. I am an empirical researcher, so I care about this. Theoreticians…….please skip this and next point!
  • Are there viable identification options? Let’s be honest, descriptive studies are becoming harder to publish in top journals. So the young, enthusiastic researcher has to be “trained” in our ways.

In my next post, I will argue that the first point is a no-brainer (some of it is based on the numbers above) for the topic of education finance and student loans. There are some weaknesses in selecting this area in terms of data, but there are enough viable options for the creative thinker. The third part may provide more good news. Even I have been able to find something that I can (somewhat) defend in conversations with top finance academics. So smarter people should be able to do better!

On a moral level (sorry about preachiness!), these problems affect our students –  a core constituency that we serve. It follows naturally that if we can shed light on these issues with our skills, it is important that we do. Oh, by the way, while we are there, can we do something about climbing higher education costs! But I digress.

More to come in part 2. In the meantime, please comment on this and tell me what you think of my ramblings. Feel free to suggest that nothing here makes sense, or that you like this and you would like to learn more. I strongly encourage younger researchers, including PhD students to learn more. I am more than happy to help out with data and code (usual caveats about “cite me please!” apply). I will also try to post data and codes when I can in the future.

Of course, I will end with some self promotion. Read my papers…. Comments welcome!

Student Debt and Personal Portfolio Risk (with Birzhan Batkeyev and Debarshi Nandy)

(with Pinshuo Wang)