Second Chance: Life Without Student Debt

Marco  Di Maggio; Ankit  Kalda; Vincent  Yao

Working Paper | 2019

Second Chance: Life Without Student Debt

by Marco Di Maggio, Ankit Kalda and Vincent Yao

Abstract

Rising student debt is considered one of the creeping threats of our time. This paper examines the effect of student debt relief on individual credit and labor market outcomes. We exploit the plausibly random debt discharge due to the inability of National Collegiate, the largest owner of private student loan debt, to prove chain of title for thousands of loans across the United States. Using hand-collected lawsuits filings matched with individual credit bureau information, we find that borrowers experiencing the debt relief shock reduce their indebtedness by 26%, by both reducing their demand for credit and limiting the use of existing credit accounts. They are also 12% less likely to default on other accounts. After the discharge, the borrowers' geographical mobility increases as well as their probability to change jobs. Ultimately their income increases by more than $4,000 over a three-year period, which is equivalent to about two months' average salary. These findings speak to the benefits of intervening in the student loan market to reduce the consequences of debt overhang problems by forgiving student debts.

Keywords: student loans; debt relief; Borrowing and Debt; Personal Finance; Outcome or Result; United States;

Language: English

Format: Print

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Citation:

Di Maggio, Marco, Ankit Kalda, and Vincent Yao. "Second Chance: Life Without Student Debt." NBER Working Paper Series, No. 25810, May 2019.

The start-up BlueVine Capital Inc. (BlueVine) used data and technology to help finance small businesses via factoring and lines of credit. The case explains the small business financing market in mid-2010s, how CEO Eyal Lifshitz identified the opportunity for BlueVine, and how he built the company through its first five years of operations. Through the case, Lifshitz and his team discover insights about their small business customers that inspire them to change their product portfolio. In December 2018, Lifshitz must decide which new products to launch next.

Working Paper | HBS Working Paper Series | 2019

The Value of Intermediation in the Stock Market

Marco Di Maggio, Mark Egan and Francesco Franzoni

Brokers continue to play a critical role in intermediating institutional stock market transactions. More than half of all institutional investor order flow is still executed by high-touch (non-electronic) brokers. Despite the continued importance of brokers, we have limited information on what drives investors' choices among them. We develop and estimate an empirical model of broker choice that allows us to quantitatively examine each investors' responsiveness to execution costs and access to research and order flow information. Studying over 300 million institutional trades, we find that investor demand is relatively inelastic with respect to commissions and that investors are willing to pay a premium for access to top research analysts and order-flow information. There is substantial heterogeneity across investors. Relative to other investors, hedge funds tend to be more price insensitive, place less value on sell-side research, and place more value on order-flow information. Furthermore, using trader-level data, we find that investors are more likely to trade with traders who are located physically closer and are less likely to trade with traders that have misbehaved in the past. Lastly, we use our empirical model to investigate the unbundling of equity research and execution services related to the MiFID II regulations. While under-reporting for the average firm is relatively small (4%), we find that the bundling of execution and research allows some institutional investors to under-report management fees by up to 15%.

Keywords: financial intermediation; Institutional investors; research analysts; Financial Institutions; Investment; Financial Services Industry;

Citation:

Di Maggio, Marco, Mark Egan, and Francesco Franzoni. "The Value of Intermediation in the Stock Market." Harvard Business School Working Paper, No. 20-016, August 2019. View Details

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At-Bay was a cyber insurance startup that offered companies coverage against a wide array of cyber risks—exposure to which the firm was able to quickly assess and price on the basis of technical expertise that traditional insurance carriers lacked. In mid-2019, At-Bay was working to build underwriting revenue ahead of a Series B round of venture funding that the company hoped to receive by year’s end. This required not only scaling its underwriting capacity and convincing insurance brokers to include the startup among the carriers they quoted to their corporate clients, but also ensuring that At-Bay avoided the temptation to grow revenues by taking on riskier clients than it might otherwise prefer.

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Second Chance: Life Without Student Debt

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