Choice Architecture Versus Price: Comparing the Effects of Changes in the U.S. Student Loan Market
Choice Architecture Versus Price: Comparing the Effects of Changes in the U.S. Student Loan Market
7 July, 2020 •Similar Articles
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We show that changes in choice architecture have a large effect on student loan decisions while we do not find significant effects of sizeable interest rate changes. We evaluate the effect of two polices implemented in 2010 by the U.S. Department of Education: (1) the requirement that all applicants for private student loans fill out a Self-Certification Form, which includes various disclosures about federal student aid, and (2) the prohibition of presenting a private student loan as a default option on a financial aid offer without disclosure of the relationship between the school and the creditor. Using difference-in-difference and matching techniques on a proprietary dataset of private student loan originations from the Consumer Financial Protection Bureau and survey and administrative data from the Department of Education, we show that these changes decreased private student loan originations. In contrast, we find no consumer response when analyzing a 60 basis point decrease in the price of federal Parental PLUS Loans at some schools, using the same datasets and similar estimation techniques