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Strategic Default Among Private Student Loan Debtors: Evidence from Bankruptcy Reform

39 Pages Posted: 5 Nov 2017  

Rajeev Darolia

Martin School of Public Policy

Dubravka Ritter

Federal Reserve Bank of Philadelphia

Date Written: 2017-11-02

Abstract

Bankruptcy reform in 2005 restricted debtors’ ability to discharge private student loan debt. The reform was motivated by the perceived incentive of some borrowers to file bankruptcy under Chapter 7 even if they had, or expected to have, sufficient income to service their debt. Using a national sample of credit bureau files, we examine whether private student loan borrowers distinctly adjusted their Chapter 7 bankruptcy filing behavior in response to the reform. We do not find evidence to indicate that the moral hazard associated with dischargeability appreciably affected the behavior of private student loan debtors prior to the policy.

Keywords: student loans, bankruptcy, bankruptcy reform

JEL Classification: D14, G21, I22, K35

Suggested Citation

Darolia, Rajeev and Ritter, Dubravka, Strategic Default Among Private Student Loan Debtors: Evidence from Bankruptcy Reform (2017-11-02). FRB of Philadelphia Working Paper No. 17-38. Available at SSRN: https://ssrn.com/abstract=3064662

Rajeev Darolia (Contact Author)

Martin School of Public Policy ( email )

Lexington, KY 40506
United States

Dubravka Ritter

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

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