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

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  • 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.

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  • 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
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    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. 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.
    4. 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.
    5. 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.

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    Keywords

    Student loans; Higher education;

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