The Effect of Reduced Student Loan Borrowing on Academic Performance and Default: Evidence from a Loan Counseling Experiment

Student loan borrowing for higher education has emerged as a top policy concern. Policy makers at the institutional, state, and federal levels have pursued a variety of strategies to inform students about loan origination processes and how much a student has cumulatively borrowed, and to provide students with greater access to loan counseling. The authors conducted an experiment to evaluate the impact of an outreach campaign that prompted loan applicants at a large community college to make informed and active borrowing decisions and that offered them access to remote, one-to-one assistance from a loan counselor. The results suggest policy-makers and higher education leaders should carefully examine the potential unintended consequences of efforts to reduce student borrowing, particularly in light of growing evidence regarding the counter-intuitive positive relationship between reduced borrowing levels and worse student academic and financial outcomes.