Who Mismanages Student Loans and Why? Loan management is worse for men & minorities

Cornaggia, Kimberly Rodgers and Xia, Han, Who Mismanages Student Loans and Why? (August 21, 2020). SSRN: http://dx.doi.org/10.2139/ssrn.3686937

Abstract: With a license to use individually identifiable information on student loan borrowers, we find that a majority of distressed student borrowers manage their debt sub-optimally and that suboptimal debt management is associated with higher loan delinquency. Cross-sectional analysis indicates that loan (mis)management varies significantly across student gender, ethnicity, and age. We test several potential selection-based explanations for such demographic variation in student loan management, including variation in students’ overconfidence, consumption preferences and discount rates, and aversion to administrative paperwork. Motivated by federal and state allegations against student loan servicers, we also test for the presence of treatment effects. Overall, the empirical evidence supports the conclusion that loan servicers’ differential treatment across borrowers play an important role in student loan outcomes.

Keywords: Student loans, Student demographics, Household finance, Loan servicers

JEL Classification: D14, H52, H81, I22, I28