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1 – 2 of 2Michael Insler, James Compton and Pamela Schmitt
This chapter examines the debt aversion of a group of college students who have the opportunity to take out a sizable, low-interest, non-credit dependent loan. If the loan is…
Abstract
Purpose
This chapter examines the debt aversion of a group of college students who have the opportunity to take out a sizable, low-interest, non-credit dependent loan. If the loan is simply invested in low-risk assets, it would effectively yield a free lunch in net interest earnings.
Methodology
The research uses survey data to examine demographic, socio-economic, personality traits, and other characteristics of those willing and unwilling to accept the loan offer, as well as their intentions of early repayment.
Findings
Individuals willing to accept the loan tend to have prior debt, longer planning horizons, come from middle-income families, and may have higher cognitive ability. Anticipated early repayment of the loan is more likely among those with prior investments, no prior debt, from STEM majors, with upper income parents, and those who expect to buy a home soon.
Research limitations/implications
We find no consistent relationships between debt aversion and intellectual ability or gender, but this finding may be hampered by our small sample of female loan-rejecters. Our limited sample size also precludes examining interactions between the dimensions of personality types.
Originality
We suggest consideration of policies to encourage “smart” borrowing, focusing on the financially disadvantaged, particularly for education loans. This study examines a uniquely occurring natural experiment regarding the opportunity to accept a non-credit dependent loan. Our results describe the behavior of young adults, an infrequently studied yet important segment of the population, especially in the context of borrowing behavior.
Details