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Navigating Higher Education Insurance: An Experimental Study on Demand and Adverse Selection"

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Abstract

We conduct a survey-based experiment with 2,776 students at a non-profit university to analyze income insurance demand in education financing. We offered students a hypothetical choice: either a federal loan with income-driven repayment or an income-share agreement (ISA), with randomized framing of downside protections. Emphasizing income insurance increased ISA uptake by 43%. We observe that students are responsive to changes in contract terms and possible student loan cancellation, which is evidence of preference adjustment or adverse selection. Our results indicate that framing specific terms can increase demand for higher education insurance to potentially address risk for students with varying outcomes.

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  • Ege Aksu & Sidhya Balakrishnan & Eric Bettinger & Jonathan S. Hartley & Michael S. Kofoed & Dubravka Ritter & Douglas A. Webber, 2024. "Navigating Higher Education Insurance: An Experimental Study on Demand and Adverse Selection"," Working Papers 24-07, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:97988
    DOI: 10.21799/frbp.wp.2024.07
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    More about this item

    Keywords

    education finance; education insurance; income insurance; adverse selection; financial aid; income-share agreement; ISA; student loan; student debt; higher education; income-driven repayment; IDR; income-contingent financing;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid

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