Strategic default among private student loan debtors: Evidence from bankruptcy reform

Rajeev Darolia, Dubravka Ritter

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

Bankruptcy reform in 2005 restricted debtors’ ability to discharge private student loan debt. The reform was motivated by the perceived incentive of some borrowers to file for bankruptcy under Chapter 7 even if they had, or expected to have, sufficient income to service their debt. Using a nationally representative sample of millions of anonymized credit bureau files, we examine whether private student loan borrowers distinctly adjusted their Chapter 7 bankruptcy filing behavior after the reform. We do not find evidence to indicate that the moral hazard associated with dischargeability appreciably affected the behavior of private student loan debtors prior to the policy. Thus, our findings do not provide empirical support to the theoretical concerns about pervasive strategic default that inspired lawmakers to make private student loan debt largely nondischargeable.

Original languageEnglish
Pages (from-to)487-517
Number of pages31
JournalEducation Finance and Policy
Volume15
Issue number3
DOIs
StatePublished - Jun 1 2020

Bibliographical note

Publisher Copyright:
© 2018 Association for Education Finance and Policy.

ASJC Scopus subject areas

  • Education

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