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  3. American Economic Journal: Applied Economics
  4. January 2023
  5. The Impact of Income-Driven Repayment on Student Borrower Outcomes

American Economic Journal:
Applied Economics

ISSN 1945-7782 (Print) | ISSN 1945-7790 (Online)

The Impact of Income-Driven Repayment on Student Borrower Outcomes

  • Daniel Herbst
American Economic Journal: Applied Economics
vol. 15, no. 1, January 2023
(pp. 1–25)
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Abstract

In the United States, most student loans follow a fixed payment schedule that falls early in borrowers' careers. This structure provides no insurance against earnings risk and may increase student loan defaults. Income-driven repayment (IDR) plans are designed to help distressed student borrowers by lowering their monthly payments to a share of income. Using random variation in a loan servicer's automatic dialing system, I find that IDR reduces delinquencies by 22 percentage points and decreases outstanding balances within eight months of take-up. I find suggestive long-run impacts on borrower credit scores, mortgage-holding rates, and other measures of financial health.

Citation

Herbst, Daniel. 2023. "The Impact of Income-Driven Repayment on Student Borrower Outcomes." American Economic Journal: Applied Economics, 15 (1): 1–25. DOI: 10.1257/app.20200362

Additional Materials

JEL Classification

  • G23 Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors
  • G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth
  • H52 National Government Expenditures and Education
  • I22 Educational Finance; Financial Aid
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