Three Essays in Education Finance and Consumer Credit

Chapter 1: "Moral Hazard and Lending: Evidence from the Federal Student Loan Market";For fifteen years, there were two programs for originating federal student loans. In the Guarantee program, private banks funded loans at terms defined by the government. In the Direct Loan program, the Department of Education funded the loans. Loan terms to borrowers were nearly identical across programs. Moral hazard existed in the former program due to a government guarantee in the event of default, while no guarantee existed in the Direct program. I estimated that Direct Loan participation reduced default rates by 1.1 percentage points (12%) for one-year and two-year schools, concentrated in the for-profit sector. Among this sample, default rates are reduced by an increased use of forbearance.;Chapter 2: "Estimating the Causal Impact of the CARD Act on Credit Card Ownership among Young Borrowers";This study quantifies the degree to which the Credit Card Accountability Responsibility and Disclosure Act of 2009 reduced the rate of credit card ownership. Effective in 2010, one provision of the Act was to restrict credit card ownership by individuals under age 21 unless they could independently prove an ability to repay debt. I estimated that the Act reduced credit card ownership among 18-20 year olds by nearly 40%; smaller impacts persisted even after cohorts turned 21 and the age restrictions were no longer binding.;Chapter 3: "Choosing Delinquency? Ranking Student Loans on the Repayment Hierarchy";This study quantifies the extent to which households prioritize the repayment of debt. When households are able to repay some, but not all, installment debts, they reveal a hierarchy. Using the 2001-2010 Surveys of Consumer Finance, I find that households place student loans near the bottom of this hierarchy. When faced with a choice between repayment of education, vehicle, or home mortgage loans, households choose to miss the education loan payment at a rate of more than 3:1. I find that observed loan characteristics explain more than one quarter of the gap in delinquency rates between education, mortgage, and vehicle loans.