1. THE UNQUALIFIED
“QUALIFIED”
A Look at the Student Lending Market
Taft Dorman
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JonLowe
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NinaWinklerova
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2. 1 | The Unqualified “Qualified”
The Unqualified “Qualified”: A Look at the Student Lending Market
Taft Dorman
Jon Lowe
Nina Winklerova
Abstract
The American economy relies heavily on its direct and indirect methods of
funding investment opportunities for economic growth. Private and federal
student loans provide means for students to borrow and invest in their cognitive
progress, and theoretically contribute to economic growth. The recent student
debt crisis has raised questions as to whether the federal government should be
involved in the student lending. We discuss the differences between the private
and federal student lending markets. We suggest both systems may be inefficient.
The federal lending system warrants higher student loan default rates, but
increases post-secondary enrollment for lower income households. The private
lending system may provide educational options for prospective college students,
but places unnecessary risk on co-signers, provides limited repayment options,
and may promote income inequality. Planning for college reduces demand for
both federal and private loans.
Introduction
A healthy financial system transfers monies from those who save to those who may
contribute to economic growth through investment opportunities. This transfer may happen in
two ways: direct finance or indirect finance. Through direct finance, securities are sold directly
from entities connected to the financial markets to households looking to save or invest. Indirect
finance includes a financial intermediary (i.e. bank) that generally, for a small interest payment,
collects deposits from saving households and then lends, at a higher rate, these deposits to
borrowers with investment ideas to contribute to economic growth. Indirect finance and
financial intermediaries are typically the primary source of transferring funds from savers to
borrowers.
The student lending market is featured primarily through the indirect financing process.
Generally, there are two parties issuing loans to student borrowers: the federal government and
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private lenders. Qualifying for a federal loan requires a high school diploma and getting
accepted into a post-secondary education institution1. Creditworthiness is associated with
qualifying for private student loans. In theory, student lending contributes to economic mobility
since it may boost the likelihood of households attending college and increasing lifelong income
(human capital theory). Educated households then contribute to economic growth.
Agency theory (Eisenhardt, 1989) is alive in the student lending market. Information
asymmetry, and the existence of adverse selection and moral hazard cause systems to be
inefficient. Cutler & Zeckhauser (2004) and Kunreuther & Pauly (2005) demonstrate through
the insurance markets that households who don’t need insurance purchase it, while households
that need it don’t. Similar effects are present in the student lending market. Who is more likely
to apply for a loan, a household with substantial assets and a sufficient amount of income or a
household with few assets and little income? Who is more likely to apply for a federal loan, and
who is more likely to apply for a private loan?
Adverse selection occurs when information asymmetry is present before a transaction
occurs between two parties. In the student lending market, student borrowers may have greater
information about their ability and plans to repay a student loan than the lender (either federal or
private). Thus, both the federal and private lending systems question which applicants to lend to,
and how much. The industry argues that federal loans are necessary because private lenders
speculate that less sophisticated and lower income households have greater default rates.
Adverse selection is reduced by lenders attempting to weed out the lemons (Akerlof,
1970) of student borrowers. Private lenders reduce adverse selection by screening prospective
borrowers of their ability to repay the debt. Similar to insurance companies requiring physical
exams, and possibly the review of prior medical records, in order to qualify for health insurance,
1 Students can fill outthe FAFSA prior to being accepted to college.
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private issuers of student loans require confirmation of trustworthiness to repay the loan through
examining a prospective borrower’s credit history. Insufficient or untrustworthy credit may
trigger the need for a co-signer. With federal loans, this behavior doesn't exist since the purpose
of federal lending is to provide economic mobility to lower income households. However,
federal loans have limits and the demand for federal funding by lower income households is
higher than the supply available, triggering an increase in demand for private loans by lower
income households when federal funds are insufficient for the intended educational outcome
(Dillon, 2009).
Moral hazard exists in the student lending market. Moral hazard deals with self-interest
and the decision each student borrower makes after receiving funds. In other words, student
borrowers may seek a human capital investment opportunity with greater risk than lenders would
prefer. For example, a student borrower may enter college with the intention of becoming a
neurosurgeon. Because of the high income potential of this profession, the lender sees the
student borrower as one with little difficulty repaying the loan. However, after embarking on the
path toward medical school the student may find they don't like the subject and change their
major to a less lucrative career, such as a high school teacher. Students may even fail to graduate
or choose to leave college voluntarily. Or a student borrower may invest the funds in the
financial markets and possibly lose it, rather than spend it on their tuition bill. The loss due to
market risk reduces the likelihood of the student borrower being able to repay the loan.
Moral hazard is reduced through restrictive covenants and collateral. Federal student
loans are unsecured loans which have few restrictive covenants, and require no collateral, thus
moral hazard is higher with these loans, compared to private student loans. If a federal student
borrower fails a course, they must return the money lent to them. On the other hand, private
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loans, which are commonly secured loans, require a co-signer when a student borrower doesn’t
have trustworthy credit. The co-signers credit, net worth, or other assets, may be used as
collateral for the loan, thus reducing moral hazard. Both federal and private loans attempt to
reduce moral hazard through bankruptcy laws. Generally, student loan debt cannot be forgiven
in bankruptcy. This law pressures student borrowers to work on repaying the debt.
For four decades, the cost of a post-secondary education has risen, annually, at least twice
the rate of inflation. Research consistently demonstrates that households believe a college
education is a ticket to opportunity even with this continuous rise of overall college costs, thus
the use of student loans is attractive (S. Mae, 2014). Approximately 60% of federal financial aid
is through student loans. This significant reliance on federal student loan debt has contributed to
the increase of college graduates carrying post-graduation debt.
Lower-income households may be unreasonably impacted by increasing post-secondary
education costs. Less fortunate households with college aspirations are obligated to fit the
college bill with student loans, which may depress their college enrollment rates, and increase
student loan defaults (Mulleneaux, 1999). The tax deductibility of student loan interest makes
student loans attractive, and college savings less attractive for higher income households because
it may reduce the cost of financing an education (Hoxby, 1998).
Student loans may hinder future economic growth and student mobility. Total student
debt has surpassed total credit card debt, and is impeding graduates from purchasing homes,
getting small business loans, starting families, saving for retirement, and saving for their
children’s college education (Ambrose, Cordell, & Ma, 2014). However, research argues that
college students who go into debt and contemplate dropping out may better off taking on more
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debt to complete their education rather than to leave with debt and no degree (Avery & Turner,
2012).
Literature Review
Studies debate predictors of college success. 60%-70% of high school graduates enroll in
post-secondary education programs (Bleemer & Zafar, 2015; Garneau, 2012) and 23% of high
school graduates are prepared for the rigors of completing a four year degree (Greene & Winters,
2005; Porter & Polikoff, 2011).
Multiple funding sources are used to cover expenses for a child’s post-secondary
education. 32% comes from parental income and savings, 30% from scholarships and grants,
16% from student borrowing, 11% from student income and savings, 6% from parental
borrowing, and 5% from relatives and friends (S. Mae, 2015a). Elliot & Beverly (2011) question
the effect of savings and assets on college progress towards graduation by looking at a sample of
1,003 students. They show that young adults who have parents with post-secondary education
savings set aside are twice as likely to be expected to graduate from college compared to those
whose parents don’t have college savings set aside. Additionally, they find that 68% of students
with college savings by their parents are expected to experience economic mobility and success.
Avery & Turner (2012) show that students who don't plan ahead take on more debt.
Studies analyze the use and impact of student loans. Elliot, Song, & Nam (2013)report
that student loans are negatively correlated with college graduation rates. Ambrose et al. (2014)
study the impact of student debt on small business formation. They find that between 2000 and
2010, student loans are creating a negative impact on economic growth with respect to business
with one to four employees. Feshbach et al. (2015) reports that 93% of outstanding student loans
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are handled by the federal government, with remaining 7% being with private
lenders. Assistance (2013) reports that student loans cause households to delay important life
events (i.e. moving out of a parent’s home, buying a home, getting married, having children,
etc.). Ionescu (2009) investigates the federal student loan program in the U.S. and finds that
offering multiple repayment options to borrower’s increases college enrollment rates.
This paper questions the participation in private and federal student loans among
American households using data from the High School Longitudinal Survey 2009 (HSLS09),
collected by the National Center for Educational Statistics (NCES). More specifically, we
question which body (private or government) may be more suitable for the student lending
market. This question is investigated by demonstrating why student lending is considered a
crisis, showing how American households save and pay for college (based on secondary data),
discussing the levels by which private and government lending participate in this market by
reviewing the pros and cons of using each party, comparing the domestic student lending market
with that of a global perspective, and demonstrating who is using the two different loan markets
using the HSLS09.
Section 2: Why is Student Lending Considered a Crisis?
American’s who borrowed money before the previous financial crisis in 2008 are now
having problems repaying their debt. Because they cannot afford to make their entire monthly
payment borrowers are making partial payments and extending the life of their loan. After being
issued, student loans are bought and sold on the secondary market. This means the timeliness of
repayment affects the amount of interest it accrues by maturity, but more importantly it changes
the yield earned by the investors who purchased the debt on the secondary market.
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Moody’s Investors Service and Fitch Ratings is considering devaluing the AAA rated
debt to below BBB. Intuitively, it makes sense that government backed debt should receive the
prime rating. However, because students aren’t defaulting the government isn’t paying off the
debt to the investor. Instead the investor is stuck waiting longer to receive their payments. The
result of the devaluation will ripple into the bond market. A decrease in credit rating this
significant, from investment grade to junk, will cause bond holders to rapidly sell off their
investments and prices will plummet.
The current rate of default in student lending is at 11.5% which is more than double the
current rate of residential lending of 5.45%. It’s important to note that during the real estate
financial crisis the default rate in home loans reached its peak at 11.26%. Even more
troublesome is the amount of students who are classified as “seriously delinquent”. Nearly one
third of the current student debt falls into this category of borrowers who are likely to convert
into defaulted debt.
Students are taking on debt to fund their education without any programs in place to
educate them about borrowing. This causes students to borrow for reasons they do not need and
extend their borrowing above what they require for their education. Without education students
who do not have all of their needs met by a federal loan are pushed towards private loans. The
negative aspect of this is that private loans charge a higher interest rate. The private loan sector
also sees an increase in their default rate from the increased demand.
Figure 1
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Another strong reason for considering student lending a crisis is the rate at which
education is appreciating. Since 1978, the price of education has increased 1225% on average. In
contrast, the appreciation of the consumer price index is marked at 279% since 1978. More
importantly, the saving that was done to hopefully pay for this generation’s education was done
over this period. Because the general increase in salary most companies use is based on the
appreciation of the consumer price index there has become a giant mismatch between education
and the incomes that fund it. This has lead to an increase of borrowing required and financial
pressure on students that might not have existed. The scariest take away from this data is the
dramatic increase in slope for the price increase of tuition and fees in year 2000 and what that
implies for the future cost of education.
Figure 2
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The price of education is increasing at an alarming rate. Alongside with this appreciation,
default rates are increasing as well. The current rate of default in student debt is already above
the peak in the real estate crisis. Investors are losing yield on the secondary market from
borrowers delaying payments. The final piece is Moody’s Investors Service and Fitch Ratings
considering devaluing the debt from prime credit-quality investment grade to junk grade. If these
problems continue to grow, they have the potential to crash the economy together.
Section 3: How America Saves and Pays for College, A View from Prior Research
The lack of saving for college may increase the demand for student loans. Saving for a
college education is an important financial goal for many households, second only to retirement
(Table 1). Less than a third of American households are saving adequately for their child’s
college education. The college savings indicator demonstrates how prepared households are in
paying for college. With only 27% of college saving households being prepared, this shows the
demand for lending services may rise (Figure 3).
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Table 1: Top Priority Saving Goals
Source: (Fidelity, 2015)
Figure 3: Household Preparedness to Pay for College
Source: (Fidelity, 2015)
The ability to meet college savings goals has declined. Figure four shows that
households have declined in their ability to meet their college savings goal since 2009. This may
trigger an increase in demand for lending sources. Figure five shows that, on average, college
Saving Goals Named #1 Priority
Retirement 26%
College 19%
Emergency Fund 16%
House/Mortgage 16%
Pay off credit card debt 15%
Future health care 4%
Pay off own student loans 4%
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saving households have approximately $10,040, or only 10.16% of total household savings for
post-secondary education purposes.
Figure 4: How Close are Households to Meeting their College Savings Goals?
Source: (Fidelity, 2015)
Figure 5: Average Amount Saved for College Compared to Total Household Savings
Source: (Fidelity, 2015)
Figure six shows that low interest earning accounts dominate the education savings
market. Less than a third of American households are using more efficient saving vehicles such
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as 529 plans (prepaid and savings), Education Savings Accounts (ESAs), Trusts, or general
investments. The lack of saving efficiency may increase in demand for student loans.
Figure 6: College Savings by Vehicle
Source: (Mae, 2013, 2014, 2015b)
Figures seven and eight show how American households pay for college. Parents take on
the majority of the responsibility, with student’s efforts to obtain grants & scholarships in
second. More loans are being taken out in the student’s name than the parents, but total
borrowing (parent & student) makes up about 25% of how family’s pay for college. If students
are more involved in the saving and investing efforts of their future education, they are more
likely to go to, and complete a college degree.
Figure 7: Parents' Intention to Pay for College Costs
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Source: (Fidelity, 2015)
Figure 8: How the Average Family Pays for College
20%
74%
6%
26%
69%
4%
28%
67%
6%
35%
61%
4%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Will Pay for All of College Will Pay for a Portion Will Not Pay forAny
2012 2013 2014 2015
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Source: (Mae, 2009, 2010, 2011, 2012, 2014, 2015a)
Section 4: Private vs. Federal Lending
Table two summarizes important differences between federal and private student
loans. With respect to the ease of access, federal loans are fairly easy to obtain, while private
loans are moderately difficult. Federal loans generally only require that a college student have a
high school diploma, where private loans are more likely to require some credit history,
demonstrating creditworthiness, which may be unlikely among high school graduates. This may
trigger an increase in co-signers with private loans. Federal loans do not have co-signing
requirements. Interest rates are important in the decision. Interest rates on federal loans are
fixed rates, while private student loans can be variable, which may be riskier for a young and
inexperienced debt borrower, especially in low interest rate environments.
Repayment options differ among private and federal loans. Federal loans provide
multiple repayment options to the borrower, which can make the ability to pay back the loan
more feasible (i.e. income based repayment plan). On the other hand, private loans, in their
current state, have fewer repayment options, making these loans less attractive. Additionally,
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2009 2010 2011 2012 2013 2014 2015 Average
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federal loans typically don’t require repayments to begin until six months after graduation, where
private loans can require repayments while the student is still in attendance.
Tax deductibility of interest is an attractive feature of student loans. Interest paid on a
federal student loans qualifies for tax deductibility treatment, where it is less common for such a
benefit with a private student loan. This tax benefit by federal loans may increase a household's
overall consumption and demand for a federal over a private loan.
Table 2: Summary Comparison of Federal vs. Private Student Loans
Loan consolidation is questioned by borrowers. Federal student loans permit loan
consolidation, but if consolidation takes place with a private lender, borrowers of federal loans
may lose their flexible repayment options. Private student loans generally don’t allow for loan
Loan Details Federal Private
Ease of Access Easy Moderate
Interest Rate Fixed Variable
Repayment options Multiple Few
Repayment While in School No Yes
Credit Check No Yes
Co-signer No Yes
Tax Deductible Interest Yes No
Can you consolidate Yes No
Repayment Penalty Fee No* Possibly
Loan Forgiveness Yes No
Life Insurance Yes No
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consolidation. Loan consolidation may be discouraged by the fact that federal student loans
carry a form of life insurance with them, where private loans don’t. If a borrower of a federal
loan dies, the loan balance is forgiven. Thus, if borrowers are considering loan consolidation,
commonly a transaction sought for reducing the required monthly payment, consideration into
how much the life insurance equivalent would be may need be investigated.
Fee structures need be considered. Generally, if a borrower is seeking to repay the loan
early, there is no prepayment penalty fee with federal student loans, but they can be found in
private student loans. Thus, it is worthy to note the importance for student borrowers, especially
of private student loans, to investigate the details of the specific loan they are considering.
MeasureOne, a private research group on student loan data reports the current nature of
federal and student loans. As of the end of Q1 of 2015, 93% of outstanding student loan
balances were in federal loans, making up $1.2 trillion (Figure 9). 94% of undergraduate
students who take out private loans have a co-signer, compared to 55% of graduate students
(Figure 10). The gap in student loan default rates is increasing. Figure 11 demonstrates the
increasing default rate gap between federal and private student loans from 2008 to 2014. In
2014, approximately 11% of federal student loans were in default, compared to less than 5% of
private loans.
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Figure 9: Outstanding Loan Balances
Source: (Feshbach et al., 2015)
Figure 10: Private Loans
Source: (Feshbach et al., 2015)
Figure 11: Student Loan Default Rates
Source: (Feshbach et al., 2015)
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Section 5: An International Perspective
Before looking at the different types of student lending programs across countries, it is
important to point out that the United States had the highest postsecondary level expenditures per
student when compared with other OECD members. Figure 12 shows that in 2011 American
postsecondary level expenditure per full-time equivalent student amounted to $26,021, which
exceeded the OECD average of $13,619. This graph illustrates the relationship between
country’s GDP and higher education spending and one can see that US expenditure was far
above the trend line.
Figure 12: International Comparison of College Expenditures
Source: National Center for Education Statistics2
England
In England, college fees were first introduced in 1998 and have been increasing until the
imposition of a £9000 ($13,680) yearly cap in 2012 (Wilkins, Shams, & Huisman, 2013). Due to
the fees, new system of higher education funding had to be established.
2 http://nces.ed.gov/programs/coe/indicator_cmd.asp
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Student loans in England are provided by Student Loans Company (SLC), which is a
non-profit, government-owned organization. It is funded by the Department for Business,
Innovation & Skills and the Department for Education. SLC provides tuition fee loans up to
£9,000 ($13,680) a year to cover the tuition and maintenance loans up to £8,000 ($12,160) a year
for covering living costs. Figure 13 shows that the amount lent in higher education has been
increasing between 2010 and 2015. This is caused by the increase of average fees each year
despite the maximum fee cap of £9,000 (Bolton, 2015). Additionally, according to the SLC
statistics the number of borrowers have been steadily increasing between these years.
Figure 13: Trend in Student Lending for English Households
Source: Student Loans Company (SLC)3
The easiest way to apply for student loans is online and it needs to be done nine months
after the start of the academic year. When applying, students have to prove their identity and
provide information about their household income.
3 http://www.slc.co.uk/
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Student loans by SLC are income contingent, which means that borrowers start repaying
them once they start getting salary. Also there is another condition that their income has to be
above £21,000 ($31,920) a year before they are required to make repayments. According to the
SLC, the interest rate on student loans equal the rate of inflation measured by the Retail Price
Index plus 3% and starts accumulating the moment the borrower receives their first student loan
payment. During the time between graduation and being employment with a salary above
£21,000 ($31,920), the interest amounts to only the rate of inflation. Repayments are calculated
by one’s employer and taken directly from the borrower’s salary. Furthermore, at the end of a tax
year the money is sent to Her Majesty's Revenue and Customs, which is the UK’s tax and
customs authority.
Besides the government-owned loan provider, there are also private lenders that
specialize in student lending such as Future Finance. Their loans range between £2,500 ($3,800)
and £40,000 ($60,800) and can cover both tuition cost and living expenses. Since students can
get better loan conditions with Student Loans Company, private lenders mainly aim to fill the
funding gap between government loans and the actual cost of attending university.
Germany
According to (Teichler, 2015), only 2% of students in Germany attend non-governmental
higher education institutions. The rest goes to public universities, which provide undergraduate
education for only small enrolment and confirmation fees in the majority of German states.
Additionally, six out of the sixteen states have recently started charging undergraduates a fee of
€800 ($856) a year. On the other hand, graduate studies are generally more expensive so students
have to find a way to finance them.
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One option that they have is to apply for the federal loans within the federal financial
assistance scheme called Bundesausbildungsförderungsgesetz or simply BAföeG, which is
provided by the Ministry of Education. This program targets both high school pupils and
university students and the average monthly sum per student increased to €450 ($477) in 2011,
which can be seen in Figure 14. The amount that students can borrow depends on their and their
parents’ income and assets. One half of the amount is considered as a grant and the other half has
to be repaid five years after the loan has been received. There is no interest on the loan and
alumni with low income or outstanding grades can be granted a reduction of repayment
obligations.
Figure 14: Federal loans per student
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Another option that students in Germany have is to apply for a loan from KfW
Bankengruppe, which is a government-owned development bank. Unlike the BAföeG, the loan
size does not depend on income and assets, but is determined by the borrower within the limits of
€100 ($106) and €650 ($689) per month. Furthermore, the interest rate is based on a reference
interest rate such as the 6-month EURIBOR and a contractually agreed binding margin. The
current effective interest rate on student loans from KfW is 3.81%. Students are required to repay
their loans within a maximum of 25 years after a grace period of 18 to 23 months.
Section 6: Who Uses What Type of Loan: A Perspective from the HSLS
Table three shows the descriptive statistics of student loan use among almost 9,500 high
school graduates entering college in 2014. Respondents were asked if they will be using a
federal loan, a private co-signed loan, or a private loan in the parent’s name to pay for college.
A large number of American households don’t know if they are going to use loans to finance
college. This agrees with prior research that the majority of households don’t have a plan on
how to fit the bill for college, and that the demand for student loans can be reduced by having a
plan. Results show that as households delay saving for college, the demand for federal loans
increases. However, this evidence is not found with private loans. More educated households
use fewer loans. Lower income households demand federal loans, but as income rises, the
demand for private loans increases. The private lending market is providing loans to more
sophisticated and wealthier households (who are more likely to afford a college education
anyways). Federal loans are being distributed to lower income and less sophisticated
households.
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Conclusion and Discussion
The student lending market is an indirect financing system by which monies from savers
(and taxpayers) is transferred into the hands of student borrowers investing in their future.
Theoretically, these students graduate from college and contribute to economic growth.
Research suggests that a college education, and the use of student loans to fund it, is considered a
good investment. However, less sophisticated households are financially illiterate and may make
sub-optimal debt management decisions (Campbell, 2006; Lusardi & Mitchell, 2014).
Student loans generally come in the form of federal or private loans. Federal loans have
fewer qualification requirements, while private loans require some form of evidence for payback,
such as creditworthiness. Federal loans have fewer measures than private loans to reduce the
problems of adverse selection and moral hazard.
Relaxed student loan eligibility requirements have little impact on college enrollment and
loan default rates, while government subsidies and multiple loan repayment options improve the
effectiveness of human capital investments for low income households (Ionescu, 2009).
Planning ahead and saving for a post-secondary education reduces the demand for student loans
(Avery & Turner, 2012).
The student debt crisis is a result of the principal agent problem. Students are borrowing
for their education without any programs in place to educate them about borrowing, resulting in
over borrowing behavior. The cost of college increases at a greater rate than inflation and
household income, feeding to this crisis.
Borrowing requires a sense of responsibility. This paper suggest that neither of the
current student lending systems are efficient. The private lending system lacks in reducing the
income inequality gap, while the federal lending system triggers high defaults. Thus, both
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systems can improve against adverse selection and moral hazard. It is suggested that the federal
system considers three options. Further research is warranted for the effectiveness of these
options:
A) Require saving behavior of its borrowers, rewarding borrowers with matching funds
B) Eliminate the first come first serve rule to allow lower income households first priority
C) Consider implementing automatic student loan payments from paychecks
Options A and B are means by which adverse selection may be reduced. Requiring
future student borrowers to demonstrate saving behavior, the federal lending system can
implement borrower responsibility as a qualification requirement. This system could provide a
match. For example, for each $1,000 the student saves up for their future college education, the
federal government could match it with $5,000 of federal loans.
Eliminating the first come first serve provision on FAFSA applications allows lower
income households to take priority in the federal aid system. This may direct higher income
households to private lenders (the market private lenders focus on).
Implementing an automatic student loan repayment system directly from borrower
paychecks, similar to that of England, may decrease student loan default rates.
The private lending system manages adverse selection and moral hazard better than the
federal system, with its higher interest rates, non-forgiveness in bankruptcy, and requiring
restrictive covenants, but fails to address the income inequality gap. If the federal lending
system improves in forcing higher income households to seek private lenders, thus increasing
fund availability for lower income households, fewer low income households may demand
private loans. To discourage lower income households from seeking private loans, the private
lending market may consider implementing a down payment requirement. For example,
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potential student borrowers could be required to have 10% of a first years’ worth of college, in
order to qualify for the private loan. This may make it more difficult for private student loan
borrowers to get a loan on top of what is already required (i.e. creditworthiness), but is a way to
promote better debt management behavior. Secondly, this paper suggests that private student
loans expand on repayment options of student borrowers. A positive relationship exists with the
demand for student loans and repayment options.
These suggestions could impact public policy in such a way to reduce adverse selection
and moral hazard, but ultimately to help avoid another student debt crisis.
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