Slowing the ‘vicious cycle’: Reducing the interest rate on child support arrears

Abstract

The amount of accumulated unpaid child support (arrears) owed throughout the United States is over $100 billion. High arrears balances mean that those who owe support may face punitive enforcement actions, those due child support did not receive the money they were owed, and the child support program must devote more attention to enforcing payment of past-due amounts at the expense of enforcing current amounts due, diverting the program’s efforts and raising the cost of enforcement. To address the problems associated with high arrears, Wisconsin reduced the amount of interest due on child support arrears from 1% per month to 0.5% per month. We leverage Wisconsin child support administrative records to conduct both descriptive and multiple regression analyses to explore arrears and payment patterns before and after the change. Findings suggest the policy not only slowed the rate of arrears growth but also increased payment amounts. Those who did not owe arrears at the beginning of the period made higher payments when they did get behind than those who owed higher arrears. Our analyses cannot prove causality, but they do provide some of the first evidence of what happens after the interest rate changes.