Critical Financial Literacy Month

This study examines the role of financial socialization, financial knowledge, and receiving financial education on student loan repayment behaviors and related financial stress, as reported by the participants. From an analysis of the 2015 National Financial Capability Study dataset, we find that individuals who received financial education in an academic or professional setting were less likely to be late on student loan payments or worry about their student loan debt. Additionally, those who received both financial education and learned about finances from their parents were even less likely to worry about their student loan debt. The broader implications of the main findings for financial counselors, therapists, and planners are also discussed.

We find that student debt is negatively related to the propensity to start a firm, particularly larger and more successful ventures. An exogenous change due to the Higher Education Amendments of 1998, which made student debt completely nondischargeable through personal bankruptcy, reduced the likelihood of entrepreneurship by student loan borrowers that were already in four-year college at the time of this regulation. Moreover, an exogenous shock to the level of student debt due to the Higher Education Amendments of 1992 negatively impacts entrepreneurship rates for students already in four-year college at the time of this regulation. Entrepreneurs with more student debt are more likely to fall behind on their student debt payments, and this relation is mitigated when their ventures are successful. Our evidence indicates that student debt inhibits entrepreneurship by exacerbating the effect of negative business outcomes on the individual.

Income-driven student loan repayment (IDR) plans provide protection against unaffordable loan payments and default by linking loan payments to borrower's earnings. Despite the advantages IDR would offer to many borrowers, take-up remains low. We use a survey experiment investigate how framing affects University of Maryland undergraduates' take-up of IDR in a set of hypothetical scenarios. Students are significantly more likely to choose IDR when the insurance aspects of IDR are emphasized and significantly less likely to do so when costs are emphasized.