Financial Consequences of Student Loan Delinquency, Default, and Servicer Quality

Meredith Welch

No 25-38, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: Using anonymized consumer credit bureau data, I examine the credit market consequences of student loan delinquency and default and the role that student loan servicers play in contributing to borrower outcomes. I exploit random assignment of student loan borrowers to student loan servicers of varying quality to study the direct effect of servicers on borrowers’ credit outcomes and to isolate variation in the likelihood of default that is not correlated with borrower characteristics. I find that being assigned to a higher-default servicer increases a borrower’s likelihood of default by approximately 6%. However, there is a precisely estimated null effect of servicer assignment on measures of borrowers’ likelihood of financial distress, credit access, and zip code characteristics. These findings suggest that averting a servicer-induced default does not yield considerable benefits for marginal borrowers’ credit outcomes but that servicers are meaningful drivers of student loan repayment outcomes.

Keywords: higher education finance; student loans; student loan default; student loan servicer; consumer credit (search for similar items in EconPapers)
JEL-codes: D14 G28 I22 (search for similar items in EconPapers)
Pages: 66
Date: 2025-12-03
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.philadelphiafed.org/-/media/FRBP/Asset ... ers/2025/wp25-38.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedpwp:102192

Ordering information: This working paper can be ordered from

DOI: 10.21799/frbp.wp.2025.38

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of Philadelphia Contact information at EDIRC.
Bibliographic data for series maintained by Beth Paul ().