Borrow now, pay even later: A quantitative analysis of student debt payment plans

Michael Boutros, Nuno Clara and Francisco Gomes

Journal of Financial Economics, 2024, vol. 159, issue C

Abstract: In the U.S., student debt is currently the second largest component of consumer debt. Households are required to repay these loans early in their lifecycle, when marginal utility is particularly high. We study alternative contracts that offer partial or full payment deferral until later in life. We calibrate an economy with the current contracts, and then solve for counterfactual equilibria. The alternative contracts yield large welfare gains, which are robust to assumptions about the behavior of the lenders and borrower preferences. The gains are similar to those that could come from the debt relief program currently being considered in the U.S., but without its adverse fiscal implications.

Keywords: Student loans; Household debt (search for similar items in EconPapers)
JEL-codes: D14 D31 G11 G51 H52 H81 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:159:y:2024:i:c:s0304405x24001211

DOI: 10.1016/j.jfineco.2024.103898

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