Grit and Credit Risk
57 Pages Posted: 12 Dec 2018 Last revised: 9 Jun 2019
Date Written: June 7, 2019
We analyze how grit affects loan default. We observe an early indicator of student grit in a decision analogous to the default decision: college course withdrawal. With a license to use individually identifiable information collected by the U.S. Department of Education, we find that students who quit college courses are 13.2% more likely to default on their student loans than those exhibiting perseverance. This effect is especially strong when students withdraw from courses in their chosen major and courses at more-selective institutions. As an alternative proxy for grit, we identify students perform poorly in classes and find that those who retake these courses are 17.1% less likely to default on their loans than those who do not retake the classes. Finally, in contrast to prior literature, we find no evidence that student credit risk is correlated with ethnicity or gender after controlling for individual grit.
Keywords: Student loans, Grit, Perseverance, Credit risk factors, Household finance
JEL Classification: D14, H52, H81, I22, I28
Suggested Citation: Suggested Citation