IDSS Presents: 'Student Loans, College Choice, and Information on the Returns to Higher Education'

Casa central de la Universidad de Chile

Casa Central of the Universidad de Chile

Photo by Richard Espinoza/CC BY-SA 3.0

Speaker:

Justine Hastings
Department of Economics, Brown University

Date:

Monday, February 16, 2015

Time:

12–1:30 p.m. PT

Location:

RAND Corporation
1776 Main Street
Santa Monica, CA

About the Program

Working in partnership with the Chilean Ministry of Education, we administered a randomized controlled trial in which we provided federal student loan applicants in Chile with information about institution- and major-specific earnings and debt outcomes constructed from linked education and tax microdata. Using survey responses collected prior to treatment, we show that students have unbiased but highly variable beliefs about tuition costs, and upward-biased beliefs about earnings outcomes for past graduates. Poorer students have less accurate information on earnings and costs, and choose degrees with lower predicted returns from the options available to them. The informational intervention does not affect whether students enroll in a tertiary degree program, but does cause low-SES students to enroll in degrees with modestly higher predicted returns. Consistent with a model of choice under imperfect information, intent-to-treat (ITT) effects are driven by less-informed students and students with less intense degree-specific preferences. We cannot reject the null hypothesis that information does not alter the choices of students receiving state-backed loans; ITT effects are positive and significant only among those who do not receive a loan. Our findings raise doubts about the efficacy of disclosure policy as the main strategy for lowering student loan default rates and encouraging financially sound educational decisions among student-loan recipients.

About the Speaker

Justine Hastings is an Associate Professor with tenure in the Economics Department at Brown University, resident fellow at Yale University ISPS, and a Research Associate at the NBER. Dr. Hasting's research integrates Industrial Organization and Public Economics to address important economic and policy questions. Hastings studies consumer behavior, and its implications for firm strategy and optimal public policy design. Her question-driven research approach employs a broad range of methodologies, from randomized controlled trials, to survey design to structural estimation of economic models. Research topics she studies include how parents choose schools and the ramifications for public school choice, how individuals make long-run career investments and the implications for student loan program design, how workers make retirement investments and the implications for social security privatization, the impact of income shocks on consumption, and the importance of information and decision making costs particularly among low-income households. Her research has implications for behavioral economics, policy design and firm strategy.

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