An Experiment on Information Use in College student Loan Decisions

An Experiment on Information Use in College student Loan Decisions

7 July, 2020  •  

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.

Similar Articles
Tying Odysseus to the Mast: Evidence from a Commitment Savings Product in the Philippines
We designed a commitment savings product for a Philippine bank and implemented it using a randomized control methodology. The savings product was i...
Retirement Contribution Rate Nudges and Plan Participation: Evidence from a Field Experiment
Simple interventions like changing the default or sending a short message can induce individuals to save more for retirement. However, messag...
Do lottery payments induce savings behavior? Evidence from the lab
This paper presents the results of a laboratory experiment designed to investigate whether the option of a Prize Linked Savings (PLS) product alter...