Choice Architecture versus Price: Comparing the Effects of Changes in the U.S. Student Loan Market

56 Pages Posted: 3 Oct 2014 Last revised: 19 Nov 2016

See all articles by Xiaoling Ang

Xiaoling Ang

Independent; Marsh & McLennan Companies - New York Office

Alexei Alexandrov

Independent

Date Written: November 17, 2016

Abstract

We show that changes in choice architecture have a large effect on student loan decisions while we do not find significant effects of sizeable interest rate changes. We evaluate the effect of two polices implemented in 2010 by the U.S. Department of Education: (1) the requirement that all applicants for private student loans fill out a Self-Certification Form, which includes various disclosures about federal aid, and (2) the prohibition of presenting a private student loan as a default option on a financial aid offer without disclosure of the relationship between the school and the creditor. Using difference-and-difference and matching techniques on a proprietary dataset of private student loan originations from the Consumer Financial Protection Bureau and survey and administrative data from the Department of Education, we show that these changes decreased private student loan originations by 33% at public four-year institutions, 18% at private not-for-profit four year institutions, and 55% at four year for-profit institutions. In contrast, we find no consumer response when analyzing 60 basis point decrease in the price of federal Parental PLUS loans at some schools, using same datasets and similar estimation techniques.

Keywords: student loans, disclosure, natural experiment, policy valuation, education, consumer finance

JEL Classification: D18, D1, I22, I28, H52, G18

Suggested Citation

Ang, Xiaoling and Alexandrov, Alexei, Choice Architecture versus Price: Comparing the Effects of Changes in the U.S. Student Loan Market (November 17, 2016). Available at SSRN: https://ssrn.com/abstract=2504660 or http://dx.doi.org/10.2139/ssrn.2504660

Xiaoling Ang (Contact Author)

Independent

No Address Available
United States

Marsh & McLennan Companies - New York Office ( email )

1166 Avenue of the Americas, 34th Floor
New York, NY 10036
United States

Alexei Alexandrov

Independent

No Address Available
United States

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