TY - JOUR
T1 - The Impact of Income-Driven Repayment on Student Borrower Outcomes
AU - Herbst, Daniel
N1 - Funding Information:
* Department of Economics, University of Arizona (email: [email protected]). David Deming was coeditor for this article. I am extremely thankful to my advisers Will Dobbie and Ilyana Kuziemko for their guidance on this project, as well as Henry Farber, Nathan Hendren, Alan Krueger, David Lee, Adam Looney, Alexandre Mas, Christopher Neilson, and Cecilia Rouse, who provided invaluable advice throughout its development. I also benefited from the helpful comments of David Arnold, Barbara Biasi, George Bulman, Felipe Goncalves, Steve Mello, David Price, Maria Micaela Sviatschi, and seminar participants at the APPAM Annual Research Conference, the CFPB Research Conference, the Federal Reserve Board, the IZA Economics of Education Workshop, the Jain Family Institute, Kansas State University, the MIT Golub Center, the National Academy of Education Research Conference, the National Tax Association Research Conference, Princeton University, the RAND Corporation, the University of Arizona, and Vanderbilt University. Financial support was provided by the Princeton Industrial Relations Section, the Jain Family Institute, the MIT Golub Center for Finance and Policy, and the National Academy of Education Spencer Dissertation Fellowship.
Publisher Copyright:
© 2023, American Economic Journal: Applied Economics. All Rights Reserved.
PY - 2023
Y1 - 2023
N2 - In the United States, most student loans follow a fixed payment schedule that falls early in borrowers’ careers. This structure provides no insurance against earnings risk and may increase student loan defaults. Income-driven repayment (IDR) plans are designed to help distressed student borrowers by lowering their monthly payments to a share of income. Using random variation in a loan servicer’s automatic dialing system, I find that IDR reduces delinquencies by 22 percentage points and decreases outstanding balances within eight months of take-up. I find suggestive long-run impacts on borrower credit scores, mortgage-holding rates, and other measures of financial health.
AB - In the United States, most student loans follow a fixed payment schedule that falls early in borrowers’ careers. This structure provides no insurance against earnings risk and may increase student loan defaults. Income-driven repayment (IDR) plans are designed to help distressed student borrowers by lowering their monthly payments to a share of income. Using random variation in a loan servicer’s automatic dialing system, I find that IDR reduces delinquencies by 22 percentage points and decreases outstanding balances within eight months of take-up. I find suggestive long-run impacts on borrower credit scores, mortgage-holding rates, and other measures of financial health.
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U2 - 10.1257/app.20200362
DO - 10.1257/app.20200362
M3 - Article
AN - SCOPUS:85158046328
SN - 1945-7782
VL - 15
SP - 1
EP - 25
JO - American Economic Journal: Applied Economics
JF - American Economic Journal: Applied Economics
IS - 1
ER -