Wednesday, November 4, 2015

Schmeiser et al.: Informing student borrowers about debt burdens reduces borrowing

By BDG

"Does Salient Financial Information Affect Academic Performance and Borrowing Behavior Among College Students?" Free Download 
FEDS Working Paper No. FEDGFE2015-75

MAXIMILIAN D. SCHMEISERFederal Reserve Board
CHRISTIANA STODDARDMontana State University - Bozeman
CARLY URBANMontana State University - Bozeman - Department of Agricultural Economics and Economics

While rising student loan debt can plague college students future finances, few federal programs have been instituted to educate college students on the mechanics of student loan borrowing. This paper exploits a natural experiment in which some students received "Know Your Debt" letters with incentivized offers for one-on-one financial counseling. Montana State University students who reached a specific debt threshold received these letters; University of Montana students did not. We use a difference-in-difference-in-differences strategy to compare students above and below the thresholds across campuses and before and after the intervention to determine how the letters affect student behavior. Employing a rich administrative dataset on individual-level academic records and financial aid packages, we find that students receiving the letters borrow an average of $1,360, less in the subsequent semester -- a reduction of one-third. This does not adversely affect their academic performance. In fact, those who receive the intervention take more credits and have higher GPAs in the subsequent semester.

http://lawprofessors.typepad.com/law_econ/2015/11/schmeiser-et-al-informing-student-borrowers-about-debt-burdens-reduces-borrowing.html

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