Improving Student Loan Contracts: The Effects of Income-Driven Repayment on Default and Consumption

Daniel Herbst

Roughly ten percent of student borrowers default on their loans within two years of graduating, despite often being eligible for more favorable repayment terms under a variety of alternative repayment options such as income-driven repayment. Low take-up of these programs suggests psychological frictions like inattention, lack of information, or enrollment complexity may prevent optimal decision-making in student loan repayment. In collaboration with a student loan servicer and debt counseling non-profit, I design and implement a randomized control trial which evaluates several behavioral interventions aimed at lowering such psychological frictions. I then track repayment program take-up and default/delinquency rates across experimental groups, thereby identifying behavioral determinants of the repayment decision as well as policy measures which may reduce default through these channels.

About Daniel Herbst

Dan is a PhD candidate in the Economics Department at Princeton University. He works primarily on applied micro topics, with an emphasis on higher education financing and student loans. Most recently, Dan’s work focuses on the design of optimal repayment plans and the evaluation of behavioral interventions in student loan repayment. Prior to his doctoral studies, Dan earned a B.A. in Applied Math-Economics and Public Policy from Brown University and served as a research assistant at the Federal Reserve Bank of New York.