Who Mismanages Student Loans and Why?

88 Pages Posted: 29 Sep 2020 Last revised: 24 Nov 2021

See all articles by Kimberly Cornaggia

Kimberly Cornaggia

Pennsylvania State University - Department of Finance

Han Xia

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: July 27, 2021

Abstract

Using individually identifiable information on student loan borrowers, we find that many distressed students manage loans sub-optimally, which is associated with higher delinquency. Mismanagement varies across student gender and ethnicity: it is more prominent among male and non-white students. Such demographic variation can be explained by “in-group” altruism of female and white loan servicer representatives, who provide exceptional assistance to borrowers from their own gender and ethnicity group. We test alternative explanations, based on students’ financial education and non-pecuniary preferences. These factors only partially explain variation in loan management. We conclude that loan servicer treatment affects student loan outcomes.

Keywords: Student loans, Gender and ethnicity, Altruism, Household finance, Loan servicers

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

Suggested Citation

Cornaggia, Kimberly and Xia, Han, Who Mismanages Student Loans and Why? (July 27, 2021). Available at SSRN: https://ssrn.com/abstract=3686937 or http://dx.doi.org/10.2139/ssrn.3686937

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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