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Do Student Loan Borrowers Opportunistically Default? Evidence from Bankruptcy Reform

51 Pages Posted: 11 Apr 2015 Last revised: 26 Mar 2016

Rajeev Darolia

Martin School of Public Policy

Dubravka Ritter

Federal Reserve Bank of Philadelphia

Date Written: September 1, 2015

Abstract

Bankruptcy reform in 2005 eliminated debtors’ ability to discharge private student loan debt in bankruptcy. This law aimed to reduce costly defaults by diminishing the perceived incentive of some private student loan borrowers to declare bankruptcy even if they had sufficient income to service their debt. Using a unique, nationally representative sample of anonymized credit bureau files, we examine the bankruptcy filing and delinquency rates of private student loan borrowers in response to the 2005 bankruptcy reform. We do not find evidence that the nondischargeability provision reduced the likelihood of filing bankruptcy among private student loan borrowers as compared with other debtors whose incentives were not directly affected by the policy.

Keywords: Bankruptcy, Bankruptcy Reform, BAPCPA, Default, Student Loans

JEL Classification: D14, G21, I22, K35

Suggested Citation

Darolia, Rajeev and Ritter, Dubravka, Do Student Loan Borrowers Opportunistically Default? Evidence from Bankruptcy Reform (September 1, 2015). FRB of Philadelphia Working Paper No. 15-17R. Available at SSRN: https://ssrn.com/abstract=2592600 or http://dx.doi.org/10.2139/ssrn.2592600

Rajeev Darolia

Martin School of Public Policy ( email )

Lexington, KY 40506
United States

Dubravka Ritter (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

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