Choice Architecture Versus Price: Comparing the Effects of Changes in the US Student Loan Market
Dec 8, 2017
In this article—published in Volume 14, Issue 4 of the Journal of Empirical Legal Studies—Edgeworth Principal Consultant Dr. Xiaoling Ang and co-author Dr. Alexei Alexandrov explore the effects of choice architecture and sizeable interest rate changes on student loan decisions. The authors evaluate the impact of two policies implemented in 2010 by the US Department of Education: (1) the requirement that all applicants for private student loans fill out a Self-Certification Form, which includes various disclosures about federal student aid, and (2) the prohibition of presenting a private student loan as a default option on a financial aid offer without disclosure of the relationship between the school and the creditor.
Using difference-in-difference and matching techniques on a proprietary dataset of private student loan originations from the Consumer Financial Protection Bureau and survey and administrative data from the Department of Education, Dr. Ang and Dr. Alexandrov conclude that the choice architecture changes decreased private student loan originations. In contrast, they find no consumer response when analyzing a 60 basis point decrease in the price of federal Parental PLUS Loans at some schools, using the same datasets and similar estimation techniques.