College student behavior and student loan default

62 Pages Posted: 12 Dec 2018 Last revised: 18 Aug 2021

See all articles by Jess Cornaggia

Jess Cornaggia

Pennsylvania State University - Department of Finance

Kimberly Cornaggia

Pennsylvania State University - Department of Finance

Han Xia

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: August 17, 2021

Abstract

This paper shows that perseverant behavior during college predicts default risk later in life. Using college transcripts, we find that students who voluntarily repeat courses after performing poorly are 10% less likely to default than peers who give up after comparably poor performance in the same courses at the same institutions. Conversely, students who quit courses mid-semester are more likely to default than their perseverant peers. Utilizing post-college financial distress, second differences, and proof by contradiction, we show that factors potentially confounding the observed behavior, such as students’ private information about human capital value, are unlikely to explain our results.

Keywords: Student loans, Default risk, Transcripts, Perseverance, Household finance

JEL Classification: D14, H52, H81, I22, I28

Suggested Citation

Cornaggia, Jess and Cornaggia, Kimberly and Xia, Han, College student behavior and student loan default (August 17, 2021). Available at SSRN: https://ssrn.com/abstract=3287952 or http://dx.doi.org/10.2139/ssrn.3287952

Jess Cornaggia

Pennsylvania State University - Department of Finance ( email )

University Park, PA 16802
United States

HOME PAGE: http://https://directory.smeal.psu.edu/jnc29

Kimberly Cornaggia (Contact Author)

Pennsylvania State University - Department of Finance ( email )

306 Business Bldg
University Park, PA 16802
United States
814-865-2243 (Phone)
814-865-3362 (Fax)

HOME PAGE: http://directory.smeal.psu.edu/kjr15

Han Xia

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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