The effect of reduced student loan borrowing on academic performance and default: Evidence from a loan counseling experiment
Abstract
Student loan borrowing for higher education has emerged as a top policy concern. We conducted an experiment to evaluate the impact of an outreach campaign that prompted loan applicants at a large community college to make informed and active borrowing decisions. The intervention led students to reduce their unsubsidized loan borrowing by 7 percent. This resulted in worse academic performance, and increased the likelihood of loan default during the five years after the intervention occurred. Our results suggest policy makers and higher education leaders should carefully examine the potential unintended consequences of efforts to reduce student borrowing, particularly in light of growing evidence regarding the counter-intuitive positive relationship between reduced borrowing levels and worse student academic and financial outcomes.