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Strategic Default Among Private Student Loan Debtors: Evidence from Bankruptcy Reform

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Abstract

Bankruptcy reform in 2005 restricted debtors? ability to discharge private student loan debt. The reform was motivated by the perceived incentive of some borrowers to file bankruptcy under Chapter 7 even if they had, or expected to have, sufficient income to service their debt. Using a national sample of credit bureau files, we examine whether private student loan borrowers distinctly adjusted their Chapter 7 bankruptcy filing behavior in response to the reform. We do not find evidence to indicate that the moral hazard associated with dischargeability appreciably affected the behavior of private student loan debtors prior to the policy.

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  • Rajeev Darolia & Dubravka Ritter, 2017. "Strategic Default Among Private Student Loan Debtors: Evidence from Bankruptcy Reform," Working Papers 17-38, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:17-38
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    More about this item

    Keywords

    student loans; bankruptcy; bankruptcy reform;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law

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