Framing Effects, Earnings Expectations, and the Design of Student Loan Repayment Schemes

42 Pages Posted: 12 Apr 2018

See all articles by Katharine G. Abraham

Katharine G. Abraham

University of Maryland - Joint Program in Survey Methodology and Department of Economics; National Bureau of Economic Research (NBER)

Emel Filiz-Ozbay

University of Maryland - College Park

Erkut Ozbay

University of Maryland

Lesley Turner

University of Maryland

Date Written: April 2018

Abstract

Income-driven student loan repayment (IDR) plans provide protection against unaffordable loan payments and default by linking loan payments to borrowers’ earnings. Despite the advantages IDR would offer to many borrowers, take-up remains low. We investigate how take-up is affected by the framing of IDR through a survey of University of Maryland undergraduates. When the insurance aspects of IDR are emphasized, students are significantly more likely to participate, while participation is significantly lower when costs are emphasized. IDR framing interacts with expected labor market outcomes. Emphasizing the insurance aspects of IDR has larger effects on students who anticipate a higher probability of not being employed and/or low earnings at graduation. In contrast, when costs are emphasized, IDR take-up is uncorrelated with students’ expected labor market outcomes. Simulation results suggest that a simple change in the framing of IDR could generate substantial reductions in loan defaults with little cost to long-run federal revenue.

Suggested Citation

Abraham, Katharine G. and Filiz-Ozbay, Emel and Ozbay, Erkut and Turner, Lesley, Framing Effects, Earnings Expectations, and the Design of Student Loan Repayment Schemes (April 2018). NBER Working Paper No. w24484, Available at SSRN: https://ssrn.com/abstract=3158923

Katharine G. Abraham (Contact Author)

University of Maryland - Joint Program in Survey Methodology and Department of Economics ( email )

College Park, MD 20742
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Emel Filiz-Ozbay

University of Maryland - College Park ( email )

College Park, MD 20742
United States

Erkut Ozbay

University of Maryland ( email )

College Park
No Address Available

Lesley Turner

University of Maryland ( email )

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
14
Abstract Views
180
PlumX Metrics