Second Chance: Life without Student Debt
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.
We want to thank Equifax Inc. for access to credit bureau data on borrowers including loan and payment amounts, plus employment and income information for a sample of borrowers. For helpful comments, we thank Sumit Agarwal, Janice Eberly (discussant), Samuel Hanson, Andres Liberman (discussant), Felicia Lonescu, Pascal Noel, Nagpurnanand Prabhala, Felipe Severino, Andrei Shleifer, Janis Skrastins (discussant), Saverio Simonelli (discussant), Jialan Wang (discussant), conference and seminar participants at the NBER Corporate Finance meeting at Stanford, Jackson-Hole Finance Conference, the Economic Policy seminar at Hoover, Stanford GSB, Dartmouth (Tuck), Federal Reserve Board, HBS, CSEF Symposium on Economics and Finance, SFS Cavalcade, LBS Summer Finance Symposium, Summer Research Conference at ISB, FDIC Consumer Research Symposium, New Perspectives on Consumer Behavior Conference at Philly Fed, Bocconi University and Bologna University. We also want to thank Alex Caracuzzo, Barbara Esty, Katherine McNeill, and Kathleen Ryan for invaluable help in collecting the court filings data. The views expressed herein are those of the authors and do not necessarily reflect the opinion of Equifax, Inc. The views expressed herein are those of the authors and do not necessarily reflect the opinion of Equifax, Inc. nor of the National Bureau of Economic Research.
- Debt cancellation for borrowers who were in default on their student loans resulted in more rapid repayment of other outstanding...