Economics at your fingertips  

Framing effects, earnings expectations, and the design of student loan repayment schemes

Katharine Abraham (), Emel Filiz-Ozbay, Erkut Y. Ozbay and Lesley Turner

Journal of Public Economics, 2020, vol. 183, issue C

Abstract: Income-driven student loan repayment (IDR) plans provide protection against unaffordable loan payments and default by linking loan payments to borrower's earnings. Despite the advantages IDR would offer to many borrowers, take-up remains low. We use a survey experiment investigate how framing affects University of Maryland undergraduates' take-up of IDR in a set of hypothetical scenarios. Students are significantly more likely to choose IDR when the insurance aspects of IDR are emphasized and significantly less likely to do so when costs are emphasized. IDR framing interacts with expected labor market outcomes. Emphasizing the insurance aspects of IDR has larger effects on students who anticipate a higher probability of nonemployment and/or low earnings at graduation. In contrast, when costs are emphasized, the choice of IRDR is uncorrelated with students' expected labor market outcomes. Simulation results suggest that a simple change in the framing of IDR could generate substantial reductions in loan defaults with only small decreases in long-run federal revenue.

Keywords: Student loans; Higher education; Government expenditures; Income-driven repayment; Income-share agreement (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Framing Effects, Earnings Expectations, and the Design of Student Loan Repayment Schemes (2018) Downloads
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:

DOI: 10.1016/j.jpubeco.2019.104067

Access Statistics for this article

Journal of Public Economics is currently edited by R. Boadway and J. Poterba

More articles in Journal of Public Economics from Elsevier
Bibliographic data for series maintained by Haili He ().

Page updated 2020-07-02
Handle: RePEc:eee:pubeco:v:183:y:2020:i:c:s0047272719301288