Grit and Credit Risk

57 Pages Posted: 12 Dec 2018 Last revised: 9 Jun 2019

See all articles by Jess Cornaggia

Jess Cornaggia

Pennsylvania State University - Department of Finance

Kimberly Rodgers Cornaggia

Pennsylvania State University - Department of Finance

Han Xia

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: June 7, 2019

Abstract

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

Cornaggia, Jess and Cornaggia, Kimberly Rodgers and Xia, Han, Grit and Credit Risk (June 7, 2019). 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://jesscornaggia.com

Kimberly Rodgers 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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