Designed to fail: Effects of the default option and information complexity on student loan repayment

• 成果类型: Article
• 署名作者: Cox, James C.; Kreisman, Daniel; Dynarski, Susan
• 署名单位: University System of Georgia; Georgia State University; University of Michigan System; University of Michigan
• 刊物名称: JOURNAL OF PUBLIC ECONOMICS
• ISSN/ISSBN: 0047-2727
• DOI: 10.1016/j.jpubeco.2020.104298
• 发表日期: 2020
• 关键词: Student loans; Default option; Income driven repayment; experiment

摘要

Within five years of leaving school, 25% of student loan borrowers default on required minimum payments. These defaults are costly: they add to interest and penalties on loans and lower credit scores, which limits access to future credit and can adversely affect job prospects. We ask why so few student loan borrowers enroll in Income Driven Repayment (IDR) plans, which insure against default caused by low earnings. To do so we run an incentivized laboratory experiment using a facsimile of the government's Student Loan Exit Counseling website. We test the roles information complexity, uncertainty about earnings, and the default option play. We find that switching the default option from the Standard plan with fixed minimum payments to an IDR with income-contingent minimum payments, and providing good information about earnings, can dramatically decrease choice of the risky Standard plan. (C) 2020 Elsevier B.V. All rights reserved.