The impact of debt forbearance on borrowers’ financial behavior and labor outcomes: Evidence from student loans

Ben Lourie, Alexander Nekrasov and Il Sun Yoo

Finance Research Letters, 2023, vol. 57, issue C

Abstract: We examine the economic impact of the 2020 student loan forbearance program on borrowers. We use detailed individual transaction data and a difference-in-differences methodology to uncover the effects of forbearance on financial behavior and labor market outcomes. Our results show that forbearance leads to increased consumption and investment and reduced bank overdrafts, consistent with a decrease in financial stress. However, we observe a negative link between forbearance and wages, suggesting potential changes in borrowers’ labor supply incentives due to reduced financial pressure. These findings shed light on the economic outcomes of debt relief policies, offering insights for future policy design and evaluation.

Keywords: Debt payment pause; Student loans; Consumption; Bank overdrafts; Investment; Wages, Financial stress (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:57:y:2023:i:c:s1544612323006372

DOI: 10.1016/j.frl.2023.104265

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