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H1d The Impact of Exponential Growth Bias on Student Loan Decisions of Emerging Adults
Short Description
Using semi-structured, in-depth interviews, we investigated the role of exponential growth bias (EGB) in the student loan decisions of emerging adults. Compound interest is an important factor in a loan decision, but the implications of compounding are not well understood by borrowers (Foltice, 2017). Biased individuals underestimate the total cost of borrowing (Soll et al., 2013). EGB is correlated with higher debt-to-income ratios (Stango & Zinman, 2009) and increased use of high-interest debt (Goda et al., 2019). The role of EGB in student loan decisions has not been previously studied. We investigated EGB’s impact on students’ willingness to take on debt, how much they borrow, and their repayment strategies. Our findings illuminate a probable mechanism by which EGB impacts student debt levels. The results detail how socioeconomic status, family socialization, and financial education may moderate the impact of EGB on student debt decisions.
Type of presentation
Accepted Oral Presentation