Navigating Higher Education Insurance: An Experimental Study on Demand and Adverse Selection"

RePEc Short ID: pbe413
ORCID iD: 0000-0002-0337-8223

Aksu, Ege; Balakrishnan, Sidhya; Bettinger, Eric; Hartley, Jonathan S.; Kofoed, Michael S.; Ritter, Dubravka; Webber, Douglas A.

doi:10.21799/frbp.wp.2024.07

Working Paper

Navigating Higher Education Insurance: An Experimental Study on Demand and Adverse Selection"

Abstract: We conduct a survey-based experiment with 2,776 students at a non-profit university to analyze income insurance demand in education financing. We offered students a hypothetical choice: either a federal loan with income-driven repayment or an income-share agreement (ISA), with randomized framing of downside protections. Emphasizing income insurance increased ISA uptake by 43%. We observe that students are responsive to changes in contract terms and possible student loan cancellation, which is evidence of preference adjustment or adverse selection. Our results indicate that framing specific terms can increase demand for higher education insurance to potentially address risk for students with varying outcomes.

Keywords: education finance; education insurance; income insurance; adverse selection; financial aid; income-share agreement; ISA; student loan; student debt; higher education; income-driven repayment; IDR; income-contingent financing;