Association for Public Policy Analysis & Management

This project investigates how students make decisions around the financing of their college education and the impacts these decisions have on educational outcomes. Specifically, we will investigate how the framing of loan offers affects students' borrowing decisions, use of other financial resources, employment, and postsecondary outcomes. Students at three community colleges located in Illinois, Ohio, and Arizona will be randomly assigned to receive different default loan offers. In all cases, students’ ability to borrow would not change and all students will have the option to borrow up to their maximum federal loan eligibility. Only the framing of the loan award – whether or not a particular loan amount is referenced and whether students need to opt-in versus opt-out of borrowing – will be affected. We will also test whether students make different borrowing decisions when prompted to complete a simple worksheet that helps them assess their expenses and resources prior to deciding how much to borrow. Past research suggests that loan opt-in costs could reduce educational attainment. This project will test whether this result holds in an experimental setting. Furthermore, if this result holds, we will be able to examine the impact of student loan debt on educational attainment, a topic few papers have been able to address causally given uniform federal loan eligibility and generosity across students. Third, our results will provide evidence of how students substitute student loans for employment and other sources of debt (e.g., credit card debt) in the short-run and the extent to which student loan debt affects longer-run financial decisions. Finally, our results will provide guidance to help colleges across the country develop loan packaging practices to best serve their students’ needs.