Do Student Loan Borrowers Opportunistically Default? Evidence from Bankruptcy Reform
51 Pages Posted: 11 Apr 2015 Last revised: 26 Mar 2016
Date Written: September 1, 2015
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: Suggested Citation