IDEAS home Printed from https://ideas.repec.org/a/eee/pubeco/v202y2021ics0047272721001298.html
   My bibliography  Save this article

The effect of reduced student loan borrowing on academic performance and default: Evidence from a loan counseling experiment

Author

Listed:
  • Barr, Andrew
  • Bird, Kelli A.
  • Castleman, Benjamin L.

Abstract

Student loan borrowing for higher education has emerged as a top policy concern. We conducted an experiment to evaluate the impact of an outreach campaign that prompted loan applicants at a large community college to make informed and active borrowing decisions. The intervention led students to reduce their unsubsidized loan borrowing by 7 percent. This resulted in worse academic performance, and increased the likelihood of loan default during the five years after the intervention occurred. Our results suggest policy makers and higher education leaders should carefully examine the potential unintended consequences of efforts to reduce student borrowing, particularly in light of growing evidence regarding the counter-intuitive positive relationship between reduced borrowing levels and worse student academic and financial outcomes.

Suggested Citation

  • Barr, Andrew & Bird, Kelli A. & Castleman, Benjamin L., 2021. "The effect of reduced student loan borrowing on academic performance and default: Evidence from a loan counseling experiment," Journal of Public Economics, Elsevier, vol. 202(C).
    • Handle: RePEc:eee:pubeco:v:202:y:2021:i:c:s0047272721001298
    DOI: 10.1016/j.jpubeco.2021.104493
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0047272721001298
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jpubeco.2021.104493?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Richard H. Thaler & Shlomo Benartzi, 2004. "Save More Tomorrow (TM): Using Behavioral Economics to Increase Employee Saving," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages 164-187, February.
    2. Jeffrey T. Denning & Todd R. Jones, 2021. "Maxed Out?: The Effect of Larger Student Loan Limits on Borrowing and Education Outcomes," Journal of Human Resources, University of Wisconsin Press, vol. 56(4), pages 1113-1140.
    3. William N. Evans & Melissa S. Kearney & Brendan Perry & James X. Sullivan, 2020. "Increasing Community College Completion Rates Among Low‐Income Students: Evidence from a Randomized Controlled Trial Evaluation of a Case‐Management Intervention," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 39(4), pages 930-965, September.
    4. Stefano DellaVigna & Elizabeth Linos, 2022. "RCTs to Scale: Comprehensive Evidence From Two Nudge Units," Econometrica, Econometric Society, vol. 90(1), pages 81-116, January.
    5. Rothstein, Jesse & Rouse, Cecilia Elena, 2011. "Constrained after college: Student loans and early-career occupational choices," Journal of Public Economics, Elsevier, vol. 95(1-2), pages 149-163, February.
    6. Benjamin M. Marx & Lesley J. Turner, 2019. "Student Loan Nudges: Experimental Evidence on Borrowing and Educational Attainment," American Economic Journal: Economic Policy, American Economic Association, vol. 11(2), pages 108-141, May.
    7. Booij, Adam S. & Leuven, Edwin & Oosterbeek, Hessel, 2012. "The role of information in the take-up of student loans," Economics of Education Review, Elsevier, vol. 31(1), pages 33-44.
    8. Deven E. Carlson & Alex Schmidt & Sarah Souders & Barbara L. Wolfe, 2020. "The Effects of Need-Based Financial Aid on Employment and Earnings: Experimental Evidence from the Fund for Wisconsin Scholars," NBER Working Papers 27125, National Bureau of Economic Research, Inc.
    9. Philip Oreopoulos & Uros Petronijevic, 2018. "Student Coaching: How Far Can Technology Go?," Journal of Human Resources, University of Wisconsin Press, vol. 53(2), pages 299-329.
    10. Stoddard, Christiana & Urban, Carly & Schmeiser, Maximilian, 2017. "Can targeted information affect academic performance and borrowing behavior for college students? Evidence from administrative data," Economics of Education Review, Elsevier, vol. 56(C), pages 95-109.
    11. Benjamin M. Marx & Lesley J. Turner, 2019. "Student Loan Choice Overload," NBER Working Papers 25905, National Bureau of Economic Research, Inc.
    12. Rajeev Darolia, 2016. "An Experiment on Information Use in College Student Loan Decisions," Working Papers 16-18, Federal Reserve Bank of Philadelphia.
    13. Christopher Avery & Sarah Turner, 2012. "Student Loans: Do College Students Borrow Too Much--Or Not Enough?," Journal of Economic Perspectives, American Economic Association, vol. 26(1), pages 165-192, Winter.
    14. Brigitte C. Madrian & Dennis F. Shea, 2001. "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(4), pages 1149-1187.
    15. Benjamin L. Castleman & Lindsay C. Page & Korynn Schooley, 2014. "The Forgotten Summer: Does the Offer of College Counseling After High School Mitigate Summer Melt Among College‐Intending, Low‐Income High School Graduates?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 33(2), pages 320-344, March.
    16. Eric P. Bettinger & Bridget Terry Long & Philip Oreopoulos & Lisa Sanbonmatsu, 2012. "The Role of Application Assistance and Information in College Decisions: Results from the H&R Block Fafsa Experiment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(3), pages 1205-1242.
    17. Meta Brown & Andrew F. Haughwout & Donghoon Lee & Joelle Scally & Wilbert Van der Klaauw, 2014. "Measuring student debt and its performance," Staff Reports 668, Federal Reserve Bank of New York.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Been, Jim & Knoef, Marike, 2023. "Student loans, spending, and parental transfers: insights from a nudge in student loan policy in the Netherlands," Other publications TiSEM d360b770-5a7a-449a-84be-3, Tilburg University, School of Economics and Management.
    2. Sandra E. Black & Jeffrey T. Denning & Lisa J. Dettling & Sarena Goodman & Lesley J. Turner, 2023. "Taking It to the Limit: Effects of Increased Student Loan Availability on Attainment, Earnings, and Financial Well-Being," American Economic Review, American Economic Association, vol. 113(12), pages 3357-3400, December.
    3. repec:fip:fedpwp:97987 is not listed on IDEAS
    4. Bird, Kelli A. & Castleman, Benjamin L. & Denning, Jeffrey T. & Goodman, Joshua & Lamberton, Cait & Rosinger, Kelly Ochs, 2021. "Nudging at scale: Experimental evidence from FAFSA completion campaigns," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 105-128.
    5. Justin C. Ortagus & Melvin J. Tanner & Isaac McFarlin Jr., 2020. "Can Re-Enrollment Campaigns Help Dropouts Return to College? Evidence from Florida Community Colleges," NBER Working Papers 26649, National Bureau of Economic Research, Inc.
    6. Tomás Monarrez & Lesley J. Turner, 2024. "The Effect of Student Loan Payment Burdens on Borrower Outcomes," Working Papers 24-08, Federal Reserve Bank of Philadelphia.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Damgaard, Mette Trier & Nielsen, Helena Skyt, 2018. "Nudging in education," Economics of Education Review, Elsevier, vol. 64(C), pages 313-342.
    2. Bird, Kelli A. & Castleman, Benjamin L. & Denning, Jeffrey T. & Goodman, Joshua & Lamberton, Cait & Rosinger, Kelly Ochs, 2021. "Nudging at scale: Experimental evidence from FAFSA completion campaigns," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 105-128.
    3. French, Robert & Oreopoulos, Philip, 2017. "Behavioral barriers transitioning to college," Labour Economics, Elsevier, vol. 47(C), pages 48-63.
    4. Kramer, Dennis A. & Lamb, Christina & Page, Lindsay C., 2021. "The effects of default choice on student loan borrowing: Experimental evidence from a public research university," Journal of Economic Behavior & Organization, Elsevier, vol. 189(C), pages 470-489.
    5. Chu, Yu-Wei Luke & Cuffe, Harold E, 2020. "Do Struggling Students Benefit From Continued Student Loan Access? Evidence From University and Beyond," Working Paper Series 21067, Victoria University of Wellington, School of Economics and Finance.
    6. Cox, James C. & Kreisman, Daniel & Dynarski, Susan, 2020. "Designed to fail: Effects of the default option and information complexity on student loan repayment," Journal of Public Economics, Elsevier, vol. 192(C).
    7. Mangrum, Daniel, 2022. "Personal finance education mandates and student loan repayment," Journal of Financial Economics, Elsevier, vol. 146(1), pages 1-26.
    8. Stoddard, Christiana & Urban, Carly & Schmeiser, Maximilian, 2017. "Can targeted information affect academic performance and borrowing behavior for college students? Evidence from administrative data," Economics of Education Review, Elsevier, vol. 56(C), pages 95-109.
    9. Abraham, Katharine G. & Filiz-Ozbay, Emel & Ozbay, Erkut Y. & Turner, Lesley J., 2020. "Framing effects, earnings expectations, and the design of student loan repayment schemes," Journal of Public Economics, Elsevier, vol. 183(C).
    10. Peter, Frauke & Spiess, C. Katharina & Zambre, Vaishali, 2021. "Informing students about college: Increasing enrollment using a behavioral intervention?," Journal of Economic Behavior & Organization, Elsevier, vol. 190(C), pages 524-549.
    11. Sandra E. Black & Jeffrey T. Denning & Lisa J. Dettling & Sarena Goodman & Lesley J. Turner, 2023. "Taking It to the Limit: Effects of Increased Student Loan Availability on Attainment, Earnings, and Financial Well-Being," American Economic Review, American Economic Association, vol. 113(12), pages 3357-3400, December.
    12. Marx, Benjamin M. & Turner, Lesley J., 2020. "Paralysis by analysis? Effects of information on student loan take-up," Economics of Education Review, Elsevier, vol. 77(C).
    13. Beshears, John & Kosowsky, Harry, 2020. "Nudging: Progress to date and future directions," Organizational Behavior and Human Decision Processes, Elsevier, vol. 161(S), pages 3-19.
    14. Pugatch, Todd & Wilson, Nicholas, 2018. "Nudging study habits: A field experiment on peer tutoring in higher education," Economics of Education Review, Elsevier, vol. 62(C), pages 151-161.
    15. Britton, Jack & Gruber, Jonathan, 2020. "Do income contingent student loans reduce labor supply?," Economics of Education Review, Elsevier, vol. 79(C).
    16. Marco Di Maggio & Ankit Kalda & Vincent Yao, 2019. "Second Chance: Life without Student Debt," NBER Working Papers 25810, National Bureau of Economic Research, Inc.
    17. Ege Aksu & Sidhya Balakrishnan & Eric Bettinger & Jonathan S. Hartley & Michael S. Kofoed & Dubravka Ritter & Douglas A. Webber, 2024. "Navigating Higher Education Insurance: An Experimental Study on Demand and Adverse Selection"," Working Papers 24-07, Federal Reserve Bank of Philadelphia.
    18. Herber, Stefanie P., 2018. "The role of information in the application for highly selective scholarships: Evidence from a randomized field experiment," Economics of Education Review, Elsevier, vol. 62(C), pages 287-301.
    19. Diane Pelly & Orla Doyle, 2022. "Nudging in the workplace: increasing participation in employee EDI wellness events," Working Papers 202208, Geary Institute, University College Dublin.
    20. Peter, Frauke H. & Zambre, Vaishali, 2017. "Intended college enrollment and educational inequality: Do students lack information?," Economics of Education Review, Elsevier, vol. 60(C), pages 125-141.

    More about this item

    Keywords

    Student loans; Higher education;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:pubeco:v:202:y:2021:i:c:s0047272721001298. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505578 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.