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

87 Pages Posted: 13 Jun 2022 Last revised: 31 May 2023

See all articles by Alexander L. Brown

Alexander L. Brown

Texas A&M University - Department of Economics

Daniel Grodzicki

Office of the Comptroller of the Currency

Paolina C. Medina

University of Houston

Date Written: June 6, 2022

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

Suggested Citation

Brown, Alexander L. and Grodzicki, Daniel and Medina, Paolina C., When Nudges Spill Over: Student Loan Use under the CARD Act (June 6, 2022). Available at SSRN: https://ssrn.com/abstract=4129413 or http://dx.doi.org/10.2139/ssrn.4129413

Alexander L. Brown

Texas A&M University - Department of Economics ( email )

4228 TAMU
College Station, TX 77843-4228
United States
979-862-8084 (Phone)
979-847-8757 (Fax)

HOME PAGE: http://econweb.tamu.edu/abrown/

Daniel Grodzicki (Contact Author)

Office of the Comptroller of the Currency ( email )

400 7th Street SW
Washington, DC 20219
United States

Paolina C. Medina

University of Houston ( email )

4750 Martin Luther King Blvd
Houston, TX 77204-60
United States

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