When Nudges Spill Over: Student Loan Use under the CARD Act

Abstract

Section 304 of the Credit Card Accountability, Responsibility, and Disclosure Act (2009) limited the marketing and sale of credit cards to college students, nudging them away from these high-rate products. While it reduced card use, we document the nudge raised student loan balances by 8.4%, 15% among the less affluent. To assess the benefits of this substitution, we design a survey that reveals prevalent sub-optimal financial decision-making among students tied to higher card debt. Model-based evidence demonstrates how these results imply the policy raised welfare. A complementary analysis indicates higher grade-point averages and on-time graduation rates resulting from the policy.

Keywords: Consumer Protection, Credit Cards, Student Loans, Financial Literacy

JEL Classification: D14, D18, G50, G53