An Experiment on Information Use in College Student Loan Decisions

Rajeev Darolia

No 16-18, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: There is ample concern that college students are making ill-informed student loan decisions with potentially negative consequences to themselves and the broader economy. This paper reports the results of a randomized field experiment in which college students are provided salient information about their borrowing choices. The setting is a large flagship public university in the Midwest, and the sample includes all nongraduating students who previously borrowed student loan money (~10,000 students). Half of the students received individually tailored letters with simplified information about future monthly payments, cumulative borrowing, and the typical borrowing of peers; the other half is the control group that received no additional information. There are at most modest effects of the letter overall, which suggests that information alone is not sufficient to drive systematically different borrowing choices among students. However, some key student subgroups changed their borrowing in response to the letter, particularly those with low GPAs. There is also evidence of intended (more contact with financial aid professionals) and unintended (lower Pell Grant receipt) consequences of the letter.

Keywords: Student Loans; Debt Letter; Financial Literacy; Payment Cards Center (search for similar items in EconPapers)
JEL-codes: D83 H52 I22 I28 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2016-06-01
New Economics Papers: this item is included in nep-cbe, nep-edu, nep-exp and nep-ger
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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