Second Chance: Life without Student Debt

Marco Di Maggio, Ankit Kalda, Vincent Yao

NBER Working Paper No. 25810
Issued in May 2019, Revised in March 2020
NBER Program(s):Corporate Finance, Economics of Education, Law and Economics, Labor Studies

We exploit an episode of plausibly-random debt discharge, due to the inability of National Collegiate to prove chain of title, to examine the effects of student debt relief on individual credit and labor market outcomes. We find that borrowers experiencing this debt relief shock reduce their indebtedness by 11%, and number of other delinquent accounts by 24%. After the discharge, we see increases in the borrowers' geographical mobility, probability of changing jobs, and ultimately their income, which increases by about $3000 over a three year period. Although we cannot quantify its costs, these findings speak to the benefits of loan forgiveness in reducing the consequences of debt overhang.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

A non-technical summary of this paper is available in the July 2019 NBER Digest.  You can sign up to receive the NBER Digest by email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w25810