Second Chance: Life without Student Debt

45 Pages Posted: 26 Apr 2019 Last revised: 7 May 2019

See all articles by Marco Di Maggio

Marco Di Maggio

Harvard Business School; National Bureau of Economic Research (NBER)

Ankit Kalda

Indiana University - Kelley School of Business - Department of Finance

Vincent W. Yao

Georgia State University - J. Mack Robinson College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: April 30, 2019

Abstract

Rising student debt is considered one of the creeping threats of our time. This paper examines the effect of student debt relief on individual credit and labor market outcomes. We exploit the plausibly-random debt discharge due to the inability of National Collegiate, the largest owner of private student loan debt, to prove chain of title for thousands of loans across the US. Using hand-collected lawsuits filings matched with individual credit bureau information, we find that borrowers experiencing the debt relief shock reduce their indebtedness by 26%, by both reducing their demand for credit and limiting the use of existing credit accounts, and are 12% less likely to default on other accounts. After the discharge, the borrowers' geographical mobility increases, as well as, their probability to change jobs and ultimately their income increases by more than $4000 over a three year period, which is equivalent to about two months' salary. These findings speak to the benefits of intervening in the student loan market to reduce the consequences of debt overhang problems by forgiving student debts.

Keywords: Student Debt, Private Student Loans, Legal Settlement, Mobility, Debt Collection

JEL Classification: D14, H52, H81, J24, I23

Suggested Citation

Di Maggio, Marco and Kalda, Ankit and Yao, Vincent W., Second Chance: Life without Student Debt (April 30, 2019). Available at SSRN: https://ssrn.com/abstract=3376245 or http://dx.doi.org/10.2139/ssrn.3376245

Marco Di Maggio (Contact Author)

Harvard Business School ( email )

Boston, MA 02163
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ankit Kalda

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

Vincent W. Yao

Georgia State University - J. Mack Robinson College of Business ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

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