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An Experiment on Information Use in College Student Loan Decisions

Author

Listed:
  • Rajeev Darolia
Abstract
There is ample concern that college students are making ill-informed student loan decisions with potentially negative consequences to themselves and the broader economy. This paper reports the results of a randomized field experiment in which college students are provided salient information about their borrowing choices. The setting is a large flagship public university in the Midwest, and the sample includes all nongraduating students who previously borrowed student loan money (~10,000 students). Half of the students received individually tailored letters with simplified information about future monthly payments, cumulative borrowing, and the typical borrowing of peers; the other half is the control group that received no additional information. There are at most modest effects of the letter overall, which suggests that information alone is not sufficient to drive systematically different borrowing choices among students. However, some key student subgroups changed their borrowing in response to the letter, particularly those with low GPAs. There is also evidence of intended (more contact with financial aid professionals) and unintended (lower Pell Grant receipt) consequences of the letter.

Suggested Citation

  • Rajeev Darolia, 2016. "An Experiment on Information Use in College Student Loan Decisions," Working Papers 16-18, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:16-18
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    References listed on IDEAS

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    Cited by:

    1. Stoddard, Christiana & Urban, Carly & Schmeiser, Maximilian, 2017. "Can targeted information affect academic performance and borrowing behavior for college students? Evidence from administrative data," Economics of Education Review, Elsevier, vol. 56(C), pages 95-109.
    2. Barr, Andrew & Bird, Kelli A. & Castleman, Benjamin L., 2021. "The effect of reduced student loan borrowing on academic performance and default: Evidence from a loan counseling experiment," Journal of Public Economics, Elsevier, vol. 202(C).
    3. Stephanie Riegg Cellini & Rajeev Darolia, 2017. "High Costs, Low Resources, and Missing Information: Explaining Student Borrowing in the For-Profit Sector," The ANNALS of the American Academy of Political and Social Science, , vol. 671(1), pages 92-112, May.
    4. Kelly Ochs Rosinger, 2017. "Federal Policy Efforts to Simplify College-Going: An Intervention in Community College Enrollment and Borrowing," The ANNALS of the American Academy of Political and Social Science, , vol. 671(1), pages 114-131, May.
    5. Bergman, Peter & Denning, Jeffrey T. & Manoli, Dayanand, 2017. "Broken Tax Breaks? Evidence from a Tax Credit Information Experiment with 1,000,000 Students," IZA Discussion Papers 10997, Institute of Labor Economics (IZA).
    6. Jing Jian Xiao & Nilton Porto & Irene McIvor Mason, 2020. "Financial capability of student loan holders who are college students, graduates, or dropouts," Journal of Consumer Affairs, Wiley Blackwell, vol. 54(4), pages 1383-1401, December.
    7. Kramer, Dennis A. & Lamb, Christina & Page, Lindsay C., 2021. "The effects of default choice on student loan borrowing: Experimental evidence from a public research university," Journal of Economic Behavior & Organization, Elsevier, vol. 189(C), pages 470-489.
    8. van der Werf, Minou M.B. & van Dijk, Wilco W. & Schonewille, Gea A. & van der Steeg, Marc W. & van Dillen, Lotte F., 2022. "Encouraging recalibration of student loans in the Netherlands: The impact of information about future costs and the ease of adjustment," Journal of Behavioral and Experimental Finance, Elsevier, vol. 34(C).

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    More about this item

    Keywords

    Student Loans; Debt Letter; Financial Literacy; Payment Cards Center;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy

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