Dennis Kramer II, Ph.D.

Founding Director – Higher Education
University of Florida

Thursday, January 17, 2019

12:00pm – 1:00pm

The Effects of Default Choice on Student Loan Borrowing:
Experimental Evidence from a Public Research University

The complexities of the postsecondary financial aid system undermine the objectives of increasing student access and success. This is particularly true when students are making decisions to accept, modify, or decline their federally-guaranteed student loans. Given these complexities, we were interested in the role of defaults and choice architecture on student loan decision-making. Our experimental results indicate that the default choice significantly influenced student loan borrowing. Specifically, we find that student randomly assigned to the opt-in default choice borrowed approximately five percent lower total and unsubsidized loan amounts and were five percentage points less likely to borrow any loans or to accept their entire loan package. Heterogeneous effects were also explored with consistent treatment effects found across multiple undergraduate student groups. Finally, we fail to find that the default choice incentivized any substitution away from subsidized and unsubsidized federal loans toward private, Graduate PLUS, or Parent PLUS loans.  Results indicate that creating an opt-in student loan choice environment may marginally increase optimal borrowing behaviors for undergraduate students.