When Consumer Financial Protection Spills Over: Student Loan Borrowing Under the CARD Act

Credit card use among college students declined sharply following the enactment of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009. Title 3, Section 304 of the Act specifically restricted the marketing and sale of credit cards on college campuses. Using a difference-in-differences approach that treats incoming freshmen who would have been unaffected by this marketing as the control group, we document an apparent spillover that increased student loan borrowing by 8.4%, and by 14% for less affluent students. A survey of students matched to their administrative records finds evidence of this substitutability between credit cards and student loans; further, it reveals that a lack of financial literacy and knowledge of financial history are correlated with the misallocation of debt between them. Using these combined empirical findings, we develop and calibrate a model of optimal student borrowing to assess the benefits of the spillovers and find the policy increased welfare. A complementary analysis indicates improvements in grade point averages and on-time graduation rates subsequent to the Act.

This paper was accepted by John Beshears, behavioral economics and decision analysis.

Supplemental Material: The online appendices and data files are available at https://doi.org/10.1287/mnsc.2024.06339.