Association for Public Policy Analysis & Management

More people are now attending college, they are staying longer, and they are borrowing more in student debt. Federal student loans allow students to finance tuition and living expenses, at subsidized interest rates, with access to flexible repayment plans, potentially expanding access to the sizeable benefits of college education. However, loans also introduce the risk that students will take on more debt than they can repay.

The problem of default is particularly acute at proprietary for-profit institutions, where students face multiple impediments to repayment of loans after leaving college: they are less likely to finish with degrees, take longer to do so, and these degrees may have lower labor market returns than from other institutions. Given all this, rates of borrowing and default at for-profit colleges still exceed national averages.

Can default be reduced by better informing student borrowers? If so, will this reduction operate through different borrowing behaviors, different investments in college education, or both?