Blind Optimism and Student Loan Debt

Th is paper analyses potential links between extreme optimism and student loan debt. Prior work fi nds extreme optimism to be associated with imprudent household savings and investment decisions. Th is paper explores whether these fi ndings are relevant to student loan decisions. Using the most recent administration of the Survey of Consumer Finances (SCF), we present evidence that extreme optimists tend to be over -indebted with higher student loan balances, in absolute terms and relative to income. Th ey are less likely to make payments on their student loan debt or reduce their loan balance. Extreme optimists are also more likely to take out loans for a degree they do not obtain and to enroll in income -based repayment plans.