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Do student loan borrowers opportunistically default? Evidence from bankruptcy reform

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Abstract

Bankruptcy reform in 2005 eliminated debtors? ability to discharge private student loan debt in bankruptcy. This law aimed to reduce costly defaults by diminishing the perceived incentive of some private student loan borrowers to declare bankruptcy even if they had sufficient income to service their debt. Using a unique, nationally representative sample of anonymized credit bureau files, we examine the bankruptcy filing and delinquency rates of private student loan borrowers in response to the 2005 bankruptcy reform. We do not find evidence that the nondischargeability provision reduced the likelihood of filing bankruptcy among private student loan borrowers as compared with other debtors whose incentives were not directly affected by the policy.

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  • Rajeev Darolia & Dubravka Ritter, 2015. "Do student loan borrowers opportunistically default? Evidence from bankruptcy reform," Working Papers 15-17, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:15-17
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    References listed on IDEAS

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    1. Wenli Li & Michelle J. White & Ning S. Zhu, 2010. "Did bankruptcy reform cause mortgage default rates to rise?," Working Papers 10-16, Federal Reserve Bank of Philadelphia.
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    7. Rajeev Darolia, 2013. "Student Loan Repayment and College Accountability," Consumer Finance Institute discussion papers 13-5, Federal Reserve Bank of Philadelphia.
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    Cited by:

    1. Rajeev Darolia, 2016. "An Experiment on Information Use in College Student Loan Decisions," Working Papers 16-18, Federal Reserve Bank of Philadelphia.
    2. Rajashri Chakrabarti & Nathaniel Pattison, 2019. "Auto Credit and the 2005 Bankruptcy Reform: The Impact of Eliminating Cramdowns," The Review of Financial Studies, Society for Financial Studies, vol. 32(12), pages 4734-4766.

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    Keywords

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    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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