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Financial Sophistication and Interest-rate Choice in Norwegian Student Loans

Author

Listed:
  • Rabanal, Jean Paul

    (University of Stavanger)

  • Toney, Philip

    (Høgskolen på Vestlandet (HVL))

  • Wang, Shuqi

    (University of Stavanger)

  • Odegaard, Bernt Arne

    (University of Stavanger)

Abstract

We use data on student debt repayments for all Norwegian students to study how financial sophistication influences financial decisions. Specifically, we look at the choice between fixed and variable interest rates. Individuals can regularly choose between a fixed rate over selected horizons, or a default variable rate. We construct decision rules reflecting different levels of financial understanding, and investigate switching behavior. We find that borrowers with business and economics background are better at identifying when to switch to a fixed rate, in particular for the more (financially) sophisticated decision rules. The overall take-up of fixed rates is however surprisingly low, and hard to reconcile with rational decision-making.

Suggested Citation

  • Rabanal, Jean Paul & Toney, Philip & Wang, Shuqi & Odegaard, Bernt Arne, 2026. "Financial Sophistication and Interest-rate Choice in Norwegian Student Loans," UiS Working Papers in Economics and Finance 2026/1, University of Stavanger.
    • Handle: RePEc:hhs:stavef:2026_001
    as

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    References listed on IDEAS

    as
    1. Baesel, Jerome B. & Biger, Nahum, 1980. "The Allocation of Risk: Some Implications of Fixed versus Index-Linked Mortgages," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 15(2), pages 457-468, June.
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    3. Brahima Coulibaly & Geng Li, 2009. "Choice of Mortgage Contracts: Evidence from the Survey of Consumer Finances," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 37(4), pages 659-673, December.
    4. Brueckner, Jan K & Follain, James R, 1988. "The Rise and Fall of the ARM: An Econometric Analysis of Mortgage Choice," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 93-102, February.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

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    JEL classification:

    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid

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