The Power of Active Disclosure: The Effect of Self-Certification on the Private Student Loan Market
*Names in bold indicate Presenter
An active disclosure is a mandatory disclosure that requires the consumer to fill out individual-specific information related to product usage on a standardized form. Active disclosures may enhance comprehension more than static informational disclosures by requiring that consumers engage with form content, much like students engage with a problem sets, and since they do not require firms to individualize information, may be less costly to implement than alternatives that convey similar information. This paper considers the effectiveness of active disclosures empirically by evaluating the 2010 implementation of the US Department of Education's Private Education Loan Applicant Self-Certification Form (Self-Cert), which requires a potential private student loan (PSL) borrower to fill out a form describing his financial need, as defined by the Department of Education and the institution the student attends. The introduction of Self-Cert effectively created a disclosure that oriented borrowers towards federal sources of financial aid and imposed an individualized borrowing limit on PSL. Using a unique loan level data set of PSL originations combined with publicly available administrative data from the Department of Education, I evaluate the effects of Self-Cert using difference-in-difference and propensity score matching techniques. I find that the implementation of Self-Cert is effective at reducing PSL origination counts and dollar volumes substantially for students of all levels at non-profit and for-profit schools. For borrowers with comparable characteristics, PSL loan amounts decrease for undergraduate borrowers at not-for-profit schools, but increase at for-profit schools and do not change significantly for graduate students. These results are corroborated by analysis of the 2008 and 2012 waves of the Department of Education's National Postsecondary Student Aid Study. These findings are consistent with the theoretical model presented in the paper and provide supportive evidence that disclosures that rely on consumers to populate individual-specific information may be effective at affecting behavior.