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The impact of debt forbearance on borrowers’ financial behavior and labor outcomes: Evidence from student loans

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  • Lourie, Ben
  • Nekrasov, Alexander
  • Yoo, Il Sun

Abstract

We examine the economic impact of the 2020 student loan forbearance program on borrowers. We use detailed individual transaction data and a difference-in-differences methodology to uncover the effects of forbearance on financial behavior and labor market outcomes. Our results show that forbearance leads to increased consumption and investment and reduced bank overdrafts, consistent with a decrease in financial stress. However, we observe a negative link between forbearance and wages, suggesting potential changes in borrowers’ labor supply incentives due to reduced financial pressure. These findings shed light on the economic outcomes of debt relief policies, offering insights for future policy design and evaluation.

Suggested Citation

  • Lourie, Ben & Nekrasov, Alexander & Yoo, Il Sun, 2023. "The impact of debt forbearance on borrowers’ financial behavior and labor outcomes: Evidence from student loans," Finance Research Letters, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:finlet:v:57:y:2023:i:c:s1544612323006372
    DOI: 10.1016/j.frl.2023.104265
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    References listed on IDEAS

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