Publications
Publications
- 2019
Second Chance: Life Without Student Debt
By: Marco Di Maggio, Ankit Kalda and Vincent Yao
Abstract
Rising student debt is considered one of the creeping threats of our time. This paper examines the effect of student debt relief on individual credit and labor market outcomes. We exploit the plausibly random debt discharge due to the inability of National Collegiate, the largest owner of private student loan debt, to prove chain of title for thousands of loans across the United States. Using hand-collected lawsuits filings matched with individual credit bureau information, we find that borrowers experiencing the debt relief shock reduce their indebtedness by 26%, by both reducing their demand for credit and limiting the use of existing credit accounts. They are also 12% less likely to default on other accounts. After the discharge, the borrowers' geographical mobility increases as well as their probability to change jobs. Ultimately their income increases by more than $4,000 over a three-year period, which is equivalent to about two months' average salary. These findings speak to the benefits of intervening in the student loan market to reduce the consequences of debt overhang problems by forgiving student debts.
Keywords
Student Debt; Private Student Loans; Legal Settlement; Mobility; Debt Collection; Debt Relief; Borrowing and Debt; Personal Finance; Outcome or Result; United States
Citation
Di Maggio, Marco, Ankit Kalda, and Vincent Yao. "Second Chance: Life Without Student Debt." NBER Working Paper Series, No. 25810, May 2019. (Revise and Resubmit to The Journal of Finance.)