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The Availability and Utilization of 401(k) Loans

Author

Listed:
  • John Beshears
  • James J. Choi
  • David Laibson
  • Brigitte C. Madrian

Abstract

We document the loan provisions in 401(k) savings plans and how participants use 401(k) loans. Although only about 22% of savings plan participants who are allowed to borrow from their 401(k) have such a loan at any given point in time, almost half had used a 401(k) loan over a longer, seven-year horizon. The probability of having a loan follows a hump-shaped pattern with respect to age, job tenure, account balance, and salary, but conditional on having a loan, loan size as a fraction of 401(k) balances declines with respect to these variables. Participants are less likely to use loans in plans that charge a higher interest rate, and loans are smaller when plans allow fewer simultaneously outstanding loans, impose a shorter maximum possible loan duration, or charge a lower interest rate.

Suggested Citation

  • John Beshears & James J. Choi & David Laibson & Brigitte C. Madrian, 2011. "The Availability and Utilization of 401(k) Loans," NBER Working Papers 17118, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:17118
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    References listed on IDEAS

    as
    1. Timothy Jun Lu & Olivia S. Mitchell, 2010. "Borrowing from Yourself: The Determinants of 401(k) Loan Patterns," Working Papers wp221, University of Michigan, Michigan Retirement Research Center.
    2. Li, Geng & Smith, Paul A., 2010. "401(K) LOANS and HOUSEHOLD BALANCE SHEETS," National Tax Journal, National Tax Association, vol. 63(3), pages 479-508, September.
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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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