Who Mismanages Student Loans and Why?

77 Pages Posted: 29 Sep 2020 Last revised: 24 Mar 2021

See all articles by Kimberly Rodgers Cornaggia

Kimberly Rodgers Cornaggia

Pennsylvania State University - Department of Finance

Han Xia

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: March 15, 2021

Abstract

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

Cornaggia, Kimberly Rodgers and Xia, Han, Who Mismanages Student Loans and Why? (March 15, 2021). Available at SSRN: https://ssrn.com/abstract=3686937 or http://dx.doi.org/10.2139/ssrn.3686937

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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