Can Self-Control Explain Avoiding Free Money? Evidence from Interest-Free Student Loans Journal Article uri icon

Overview

abstract

  • Abstract; This paper uses insights from behavioral economics to explain a particularly surprising borrowing phenomenon: one in six undergraduate students offered interest-free loans turns them down. Models of impulse control predict that students may optimally reject subsidized loans to avoid excessive consumption during school. Using the National Postsecondary Student Aid Study, we investigate students' take-up decisions and identify a group of students for whom the loans create an especially tempting liquidity increase. Students who would receive the loan in cash are significantly more likely to turn it down, suggesting that consumers choose to limit their liquidity in economically meaningful situations.

publication date

  • October 1, 2013

Date in CU Experts

  • June 29, 2014 11:39 AM

Full Author List

  • Cadena BC; Keys BJ

author count

  • 2

Other Profiles

International Standard Serial Number (ISSN)

  • 0034-6535

Electronic International Standard Serial Number (EISSN)

  • 1530-9142

Additional Document Info

start page

  • 1117

end page

  • 1129

volume

  • 95

issue

  • 4