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- Title
Student Loan Debt Literacy, Overconfidence Bias, and Indebtedness Behavior.
- Authors
Salas, Manuel
- Abstract
Debt-financed graduate education refers to the practice of borrowing money to fund postgraduate studies, such as a master's degree. How undergraduates make graduate student loan decisions is an area of growing policy interest in higher education, but it is nevertheless an understudied area in behavioral finance. In this article, our purpose was to find out whether a financial education intervention aimed at graduate loan decision making leads to an improvement in debt-related choices and, if so, to what extent. In addition, we wish to learn more about the mechanisms through which such causal effects operate. Based on a randomized controlled experiment among college seniors, this study shows that the financial education intervention decreased the likelihood of taking on excessive debt through a graduate student loan (i.e., assuming a level of debt higher than that necessary to make a certain economically viable investment). The study also shows that the financial education intervention reduced overconfidence bias (i.e., the tendency for individuals to overestimate their abilities and knowledge). Finally, we carry out a causal mediation analysis to investigate the extent to which overconfidence plays a mediating role in the effect of the financial education intervention on debt outcomes.
- Subjects
STUDENT loan debt; STUDENT loans; DEBT; BEHAVIORAL economics; GRADUATE education; MASTER'S degree; MONEY market funds; LITERACY
- Publication
Journal of Neuroscience, Psychology, & Economics, 2024, Vol 17, Issue 2, p63
- ISSN
1937-321X
- Publication type
Article
- DOI
10.1037/npe0000192