June 3, 2019 | News

The National Bureau of Economic Research recently distributed a working paper "Second Chance: Life without Student Debt," co-authored by Vega academic expert Dr. Marco Di Maggio, an Associate Professor of Business Administration at Harvard Business School. This new study offers insight into what happens when borrowers' student loan debt is cancelled, concluding that cancelling student loans frees up borrowers to make decisions that improve their financial lives.

Abstract:

We exploit an episode of plausibly-random debt discharge, due to the inability of National Collegiate to prove chain of title, to examine the effects of student debt relief on individual credit and labor market outcomes. We find that borrowers experiencing this debt relief shock reduce their indebtedness by 11%, and number of other delinquent accounts by 24%. After the discharge, we see increases in the borrowers' geographical mobility, probability of changing jobs, and ultimately their income, which increases by about $3000 over a three year period. Although we cannot quantify its costs, these findings speak to the benefits of loan forgiveness in reducing the consequences of debt overhang.

Dr. Di Maggio's current research focuses on financial intermediation, including studies at the intersection of macroeconomics and finance. Vega has worked with Dr. Di Maggio on projects involving consumer loans and related finance issues.

The views expressed in these articles are solely those of the authors, who are responsible for the content, and do not necessarily represent the views of Vega Economics. For more information about retaining Dr. Di Maggio, please email experts@vegaeconomics.com.

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