The Student Loan Consolidation Option

Deborah Lucas and Damien Moore
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Damien Moore: Congressional Budget Office

No 2012-015, Working Papers from Human Capital and Economic Opportunity Working Group

Abstract: The federal government makes subsidized federal financing for higher education widely available. The extent of the subsidy varies over time with interest rate and credit market conditions. A loan provision that has added considerably to the size and volatility of the subsidy is the consolidation option, which allows students to convert floating rate federal loans to a fixed rate equal to the average floating rate on their outstanding loans. We develop a model to estimate the option's cost and to evaluate its sensitivity to changes in program rules, economic conditions, and borrower behavior. We model borrower behavior using data from the National Student Loan Data System, which provides new insights on the responsiveness of consumers to financial incentives.

Keywords: student loans; federal credit; subsidies (search for similar items in EconPapers)
JEL-codes: G28 H23 H31 (search for similar items in EconPapers)
Date: 2008-08
Note: M
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http://humcap.uchicago.edu/RePEc/hka/wpaper/Lucas_ ... an-consolidation.pdf First version, August, 2008 (application/pdf)

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Journal Article: The student loan consolidation option (2019)
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