Framing effects, earnings expectations, and the design of student loan repayment schemes
Katharine Abraham (),
Erkut Y. Ozbay and
Journal of Public Economics, 2020, vol. 183, issue C
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)
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Working Paper: Framing Effects, Earnings Expectations, and the Design of Student Loan Repayment Schemes (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:183:y:2020:i:c:s0047272719301288
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