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.
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)