The Impact of Income-Driven Repayment on Student Borrower Outcomes

Daniel Herbst

American Economic Journal: Applied Economics, 2023, vol. 15, issue 1, 1-25

Abstract: In the United States, most student loans follow a fixed payment schedule that falls early in borrowers' careers. This structure provides no insurance against earnings risk and may increase student loan defaults. Income-driven repayment (IDR) plans are designed to help distressed student borrowers by lowering their monthly payments to a share of income. Using random variation in a loan servicer's automatic dialing system, I find that IDR reduces delinquencies by 22 percentage points and decreases outstanding balances within eight months of take-up. I find suggestive long-run impacts on borrower credit scores, mortgage-holding rates, and other measures of financial health.

JEL-codes: G23 G51 H52 I22 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (7)

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DOI: 10.1257/app.20200362

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