Framing Effects, Earnings Expectations, and the Design of Student Loan Repayment Schemes / Katharine G. Abraham, Emel Filiz-Ozbay, Erkut Y. Ozbay, Lesley J. Turner.

Format:

Book

Author/Creator:

Abraham, Katharine G.

Contributor:

National Bureau of Economic Research.

Filiz-Ozbay, Emel.

Ozbay, Erkut Y.

Turner, Lesley J.

Series:

Working Paper Series (National Bureau of Economic Research) no. w24484.

NBER working paper series no. w24484

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2018.

Summary:

Income-driven student loan repayment (IDR) plans provide protection against unaffordable loan payments and default by linking loan payments to borrowers' earnings. Despite the advantages IDR would offer to many borrowers, take-up remains low. We investigate how take-up is affected by the framing of IDR through a survey of University of Maryland undergraduates. When the insurance aspects of IDR are emphasized, students are significantly more likely to participate, while participation is significantly lower when costs are emphasized. IDR framing interacts with expected labor market outcomes. Emphasizing the insurance aspects of IDR has larger effects on students who anticipate a higher probability of not being employed and/or low earnings at graduation. In contrast, when costs are emphasized, IDR take-up is uncorrelated with students' expected labor market outcomes. Simulation results suggest that a simple change in the framing of IDR could generate substantial reductions in loan defaults with little cost to long-run federal revenue.

Notes:

Print version record

April 2018.