Designed to Fail: Effects of the Default Option and Information Complexity on Student Loan Repayment

James Cox, Daniel Kreisman and Susan Dynarski

No 25258, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We ask why so few student loan borrowers enroll in Income Driven Repayment when the majority would benefit from doing so. To do so we run an incentivized laboratory experiment using a facsimile of the government’s Student Loan Exit Counseling website. We test the role information complexity, uncertainty about earnings, and the default option play. We show that despite an ex ante optimal choice, the majority choose, or are defaulted into, a plan that offers no protection against default. We find the default option is a driver of this phenomenon, suggesting the government has an easy policy lever to lower default rates – change the default plan.

JEL-codes: I2 I20 I21 I22 I23 I28 J01 (search for similar items in EconPapers)
Date: 2018-11
New Economics Papers: this item is included in nep-exp and nep-lab
Note: CH ED LS PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Published as James C. Cox & Daniel Kreisman & Susan Dynarski, 2020. "Designed to fail: Effects of the default option and information complexity on student loan repayment," Journal of Public Economics, vol 192.

Downloads: (external link)
http://www.nber.org/papers/w25258.pdf (application/pdf)

Related works:
Journal Article: Designed to fail: Effects of the default option and information complexity on student loan repayment (2020)
Working Paper: Designed to Fail: Effects of the Default Option and Information Complexity on Student Loan Repayment (2020)
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:nbr:nberwo:25258

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w25258

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().