Who Mismanages Student Loans and Why?

Review of Financial Studies, forthcoming

83 Pages Posted: 29 Sep 2020 Last revised: 20 Jul 2023

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 19, 2023

Abstract

Many financially distressed students who qualify for federal assistance plans with interest moratorium and principal forgiveness instead accrue interest over long periods of nonpayment. This loan mismanagement is associated with higher delinquency. Mismanagement varies significantly across student gender and ethnicity: it is more prominent among male and non-white students. Mismanagement also varies across loan servicers, depending on proxies for student-adverse servicer policies. We consider explanations based on student selection and servicer treatment for loan mismanagement. Student financial literacy plays an important role but variation in treatment on the part of loan servicers appears more important.

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 19, 2023). Review of Financial Studies, forthcoming , 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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