Framing and Labeling Effects in Preferences for Borrowing for College: An Experimental Analysis

Brent J. Evans (), Angela Boatman and Adela Soliz
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Brent J. Evans: Vanderbilt University
Angela Boatman: Vanderbilt University
Adela Soliz: Vanderbilt University

Research in Higher Education, 2019, vol. 60, issue 4, No 3, 438-457

Abstract: Abstract Evidence from behavioral economics suggests that the framing and labeling of choices affect financial decisions. Through a randomized control trial of over six thousand high school seniors, community college students, and adults without a college degree, we identify the existence of both framing and labeling effects in respondents’ preferences for borrowing for postsecondary education. How financially equivalent contracts are framed alters the preferences of high school and community college students. Furthermore, simply labeling a contract a “loan” reduces the likelihood of selecting that option by 8–11 percentage points among those samples. These effects are more pronounced among Black high school respondents and Hispanic high school and community college respondents who are both twice as likely as White respondents to avoid the loan option when it is labeled a “loan.” Finally, we provide suggestive evidence that this labeling effect is driven by more risk averse respondents. Our findings imply that the federal government, states, and institutions should be attentive to the language used when offering and explaining financial aid packages for higher education.

Keywords: Educational economics; State and federal aid; Student financial aid; Student loans (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11162-018-9518-y

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