Skip to Content Skip to Footer

RESEARCH INSIGHT | Perception Is Everything with Paying Student Loans

The Research

Student loan borrowers are often not aware of the actual cost of higher education until much later. Seeing these large debts can overwhelm inexperienced student borrowers, to the extent that the feeling of difficulty associated with paying off student loan debt decreases the motivation to control spending. A motivated and committed borrower will likely make every effort to control spending. Unmotivated and indifferent borrowers, on the other hand, are more likely to overspend.

Viewing the debt in an attainable monthly payment format can help these borrowers combat this inertia. The authors found that borrowers with large balances ($40,000 and above) benefit most from viewing student loan debt in a monthly repayment format and are consequently more likely to control their spending.

Click here for more Research Insights.



What You Need to Know

  • Knowing the amount of future monthly payments (even as a rudimentary projection) has both economic and psychological benefits for borrowers with high student loan debt.
  • Monthly payments that are considered more manageable will also sustain individuals’ commitment to paying off student loan debt.


Across three studies, the authors investigate the effect of student loan debt on spending. Evidence from consumer finance data and experimental scenarios reveals that borrowers with moderate student loan debt are less likely to spend than people with low (or no) debt. However, borrowers with high debt are more likely to spend relative to those with moderate debt. The latter effect is consistent with goal disengagement, as paying off high student loan debt seems difficult. Importantly, the spending propensity associated with high student loan debt is attenuated by presenting the debt in a monthly payment (vs. lump-sum) format, which reduces perceived payoff difficulty. From a public policy perspective, the authors recommend that estimated monthly payments be included in all student loan disclosures.


Yi Zhang, Ronald Wilcox, and Amar Cheema, “The Effect of Student Loan Debt on Spending: The Role of Repayment Format,” Forthcoming in January Journal of Public Policy & Marketing 40 (3),