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.
|Number of pages||31|
|Journal||Education Finance and Policy|
|State||Published - Jun 1 2020|
Bibliographical notePublisher Copyright:
© 2018 Association for Education Finance and Policy.
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