Refunds, Rationality, and Inequity: A Behavioral Economics Analysis of Student Loan Borrowing

• In Event: AERA Roundtable Session Friday 7:45 am - Gold 1
  In Roundtable Session: Student Debt: Information, Decision-Making and Outcomes

Abstract

The rising cost of higher education and growing student loan debt have intensified debates about college affordability. This study examines an overlooked driver of debt: student loan refunds, or excess funds borrowed beyond tuition. Guided by behavioral economics, it uses NPSAS:2020 data to test whether financial and loan literacy predict cumulative borrowing and refund receipt, with race as a moderator. Higher financial literacy predicted reduced borrowing; loan literacy showed no similar effect. Both literacies were linked to refund receipt, with lower literacy increasing likelihood. Black students borrowed more than non-Black peers, but race did not moderate literacy effects. Findings call for culturally responsive literacy initiatives and policy reform addressing non-tuition costs as key contributors to student debt.

Author

• Nicole Marie Johnson, Howard University