Personal Finance Education Mandates and Student Loan Repayment

Abstract

Many states require students to complete personal finance education to graduate from high school. I study whether these requirements improve federal student loan outcomes after college. I propose a novel identification strategy to estimate the causal effect of state-by-cohort level policy changes on university-level outcomes. This strategy marks an improvement in identification from previous studies which do not directly observe the state in which borrowers attended high school. Additionally, this strategy allows for separate identification of the effect on borrowing from the effect on repayment. I find that only higher income students adjust student loan borrowing. On the other hand, first generation and low income borrowers who were bound by mandates did not significantly adjust borrowing but were nonetheless more likely to pay down balances. The evidence suggests that the improvements in repayment may be due to a better understanding of the terms governing federal student loans.