The Insurance Implications of Government Student Loan Repayment Schemes

Martin Gervais, Qian Liu and Lance Lochner

No 30790, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We use new administrative data that links detailed information on Canadian student loan recipients with their repayment and income histories from the Canada Student Loans Program (CSLP), income tax filings, and post-secondary schooling records to measure the extent to which student borrowers adjust loan repayments to insure against income variation. Several mechanisms are available for students to adjust loan repayments in response to income fluctuations: formal, like CSLP's Repayment Assistance Plan; and informal, such as delinquency or default. Borrowers can also make larger payments than required should they experience unexpectedly high income. Indeed, loan payments are shown to increase in income, more so in early years and for individuals with higher initial debt. More formally, we estimate that on average, an unexpected $1,000 change in year-over-year income is associated with a $30 change in loan payment: from a $50 change the year after graduation, declining to a $20 change 5 years after graduation. Loan repayments are also used to absorb income variation that is more permanent in nature: for borrowers whose income is consistently below or above expected income at graduation, the magnitude of average repayment adjustment is similar to the average yearly response.

JEL-codes: E21 G51 H52 I22 (search for similar items in EconPapers)
Date: 2022-12
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Published as Martin Gervais & Qian Liu & Lance Lochner, 2023. "The Insurance Implications of Government Student Loan Repayment Schemes," AEA Papers and Proceedings, vol 113, pages 535-540.

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Journal Article: The Insurance Implications of Government Student Loan Repayment Schemes (2023)
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