Can Self-Control Explain Avoiding Free Money? Evidence from Interest-Free Student Loans

Brian Cadena and Benjamin Keys

The Review of Economics and Statistics, 2013, vol. 95, issue 4, 1117-1129

Abstract: This paper uses insights from behavioral economics to explain a particularly surprising borrowing phenomenon: one in six undergraduate students offered interest-free loans turns them down. Models of impulse control predict that students may optimally reject subsidized loans to avoid excessive consumption during school. Using the National Postsecondary Student Aid Study, we investigate students' take-up decisions and identify a group of students for whom the loans create an especially tempting liquidity increase. Students who would receive the loan in cash are significantly more likely to turn it down, suggesting that consumers choose to limit their liquidity in economically meaningful situations. © 2013 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Keywords: student loans; self-control; time discounting; debt aversion; mental accounting (search for similar items in EconPapers)
JEL-codes: D91 H52 I28 (search for similar items in EconPapers)
Date: 2013
References: Add references at CitEc
Citations: View citations in EconPapers (28)

Downloads: (external link)
http://www.mitpressjournals.org/doi/pdf/10.1162/REST_a_00321 link to full text PDF (application/pdf)
Access to full text is restricted to subscribers.

Related works:
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: https://EconPapers.repec.org/RePEc:tpr:restat:v:95:y:2013:i:4:p:1117-1129

Ordering information: This journal article can be ordered from
https://mitpressjour ... rnal/?issn=0034-6535

Access Statistics for this article

The Review of Economics and Statistics is currently edited by Pierre Azoulay, Olivier Coibion, Will Dobbie, Raymond Fisman, Benjamin R. Handel, Brian A. Jacob, Kareen Rozen, Xiaoxia Shi, Tavneet Suri and Yi Xu

More articles in The Review of Economics and Statistics from MIT Press
Bibliographic data for series maintained by The MIT Press ().