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Explaining Individuals¡¯ Behavior towards Their Acquisition of Students¡¯ Loan in the US

Author

Listed:
  • Asare Eric
  • Segarra Eduardo

Abstract

This study investigates the behavior of individuals in the US regarding the amount of student loans they might borrow with a two-part model. The model was estimated using the 2013 Survey of Consumer Finance (SCF) data, collected by the Governors of the Federal Reserve System, US, in collaboration with the Statistics and Income Division of the Internal Revenue Service, US. The sampling and imputation errors that are associated with the SCF data were accounted for in the model estimation process to ensure reliable inferences. Old age (41 years and older), previous experience with bankruptcy, attitude towards borrowing to finance education, being Hispanic, employment status, and wage salary were found to be significant variables that can influence the likelihood that a student will borrow a student loan and the amount he/she would borrow. This study also found out that using the SCF data without accounting for the inherent imputation and sampling errors, could lead to biased estimates and incorrect model inferences. The results of this study could help students¡¯ loan managers and other relevant stakeholders such as the Federal Government understand the behavior of potential borrowers of student loans to effectively manage the program.

Suggested Citation

  • Asare Eric & Segarra Eduardo, 2017. "Explaining Individuals¡¯ Behavior towards Their Acquisition of Students¡¯ Loan in the US," Applied Economics and Finance, Redfame publishing, vol. 4(3), pages 102-110, May.
  • Handle: RePEc:rfa:aefjnl:v:4:y:2017:i:3:p:102-110
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    References listed on IDEAS

    as
    1. Lance Lochner & Alexander Monge-Naranjo, 2014. "Student Loans and Repayment: Theory, Evidence and Policy," Working Papers 2014-40, Federal Reserve Bank of St. Louis, revised 12 Nov 2014.
    2. Irina Grafova, 2007. "Your Money or Your Life: Managing Health, Managing Money," Journal of Family and Economic Issues, Springer, vol. 28(2), pages 285-303, June.
    3. Susan M. Dynarski, 2015. "An Economist's Perspective on Student Loans in the United States," CESifo Working Paper Series 5579, CESifo.
    4. Federico Belotti & Partha Deb & Willard G. Manning & Edward C. Norton, 2015. "twopm: Two-part models," Stata Journal, StataCorp LP, vol. 15(1), pages 3-20, March.
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