TY - JOUR
T1 - Strategic default among private student loan debtors
T2 - Evidence from bankruptcy reform
AU - Darolia, Rajeev
AU - Ritter, Dubravka
N1 - Publisher Copyright:
© 2018 Association for Education Finance and Policy.
PY - 2020/6/1
Y1 - 2020/6/1
N2 - 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.
AB - 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.
UR - http://www.scopus.com/inward/record.url?scp=85090629606&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85090629606&partnerID=8YFLogxK
U2 - 10.1162/edfp_a_00285
DO - 10.1162/edfp_a_00285
M3 - Article
AN - SCOPUS:85090629606
SN - 1557-3060
VL - 15
SP - 487
EP - 517
JO - Education Finance and Policy
JF - Education Finance and Policy
IS - 3
ER -