April 2024

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

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


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: Adverse Selection, Education Finance, Higher Education, Income Share Agreements, Student Loans

DOI: https://doi.org/10.17016/FEDS.2024.024

PDF: Full Paper

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Last Update: April 19, 2024