Working Paper — Navigating Higher Education Insurance: An Experimental Study on Demand and Adverse Selection

A survey-based experiment in collaboration with the Philadelphia Federal Reserve.

How do students respond to different framings of education financing? Insurance is a meaningful framing for income-share agreements, suggests a new paper from Sidhya Balakrishnan (JFI’s Director of Research), Eric Bettinger (Stanford University and NBER), Michael S. Kofoed (University of Tennessee at Knoxville), Dubravka Ritter (Federal Reserve Bank of Philadelphia), Douglas A. Webber (Board of Governors of the Federal Reserve), Ege Aksu (CUNY Graduate Center and Jain Family Institute), and Jonathan S. Hartley (Stanford University).

The 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.

View the paper on the Philadelphia Federal Reserve.

View the paper on NBER.