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

Author

Listed:
  • Sidhya Balakrishnan
  • Eric Bettinger
  • Michael S. Kofoed
  • Dubravka Ritter
  • Douglas A. Webber
  • Ege Aksu
  • Jonathan S. Hartley

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.

Suggested Citation

  • Sidhya Balakrishnan & Eric Bettinger & Michael S. Kofoed & Dubravka Ritter & Douglas A. Webber & Ege Aksu & Jonathan S. Hartley, 2024. "Navigating Higher Education Insurance: An Experimental Study on Demand and Adverse Selection," NBER Working Papers 32260, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32260
    Note: ED
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    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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