Who Mismanages Student Loans and Why?
77 Pages Posted: 29 Sep 2020 Last revised: 24 Mar 2021
Date Written: March 15, 2021
With a license to use individually identifiable information on student loan borrowers, we find that a majority of distressed student borrowers manage their debt sub-optimally and that suboptimal debt management is associated with higher loan delinquency. Cross-sectional analysis indicates that loan (mis)management varies significantly across student gender and ethnicity. We test several potential selection-based explanations for such demographic variation in student loan management, including variation in students’ overconfidence, consumption preferences and discount rates, and aversion to administrative paperwork. Motivated by federal and state allegations against student loan servicers, we also test for the presence of treatment effects. Overall, the empirical evidence supports the conclusion that loan servicers’ differential treatment across borrowers play an important role in student loan outcomes.
Keywords: Student loans, Student demographics, Household finance, Loan servicers
JEL Classification: D14, H52, H81, I22, I28
Suggested Citation: Suggested Citation