Strategic Default Among Private Student Loan Debtors: Evidence from Bankruptcy Reform

Rajeev Darolia and Dubravka Ritter

No 17-38, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: Bankruptcy reform in 2005 restricted debtors? ability to discharge private student loan debt. The reform was motivated by the perceived incentive of some borrowers to file bankruptcy under Chapter 7 even if they had, or expected to have, sufficient income to service their debt. Using a national sample of credit bureau files, we examine whether private student loan borrowers distinctly adjusted their Chapter 7 bankruptcy filing behavior in response to the reform. We do not find evidence to indicate that the moral hazard associated with dischargeability appreciably affected the behavior of private student loan debtors prior to the policy.

Keywords: student loans; bankruptcy; bankruptcy reform (search for similar items in EconPapers)
JEL-codes: D14 G21 I22 K35 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2017-11-02
New Economics Papers: this item is included in nep-ban, nep-edu and nep-law
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Journal Article: Strategic Default Among Private Student Loan Debtors: Evidence from Bankruptcy Reform (2020)
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