In the following you will experience a simulation of the federal government's Student Loan Exit Counseling in which students learn about student loan repayment options and can choose a repayment plan. For our purposes, we will assume you have a Direct Subsidized Undergraduate student loan of $23,000 at an interest rate of 4.6%.

Your payment for participation in this study will come from "lab earnings" taken over 25 "lab years." These "lab earnings" are designed to reflect a random draw from the distribution of what actual recent college graduates with a Bachelor's degree might expect to earn over each of the next 25 years.

To determine your "lab earnings", we begin by dividing the distribution of pre-tax earnings from work for 24 year olds in the U.S. with a Bachelor's degree into 20 representative individuals. You are then randomly assigned to be one of these individuals - thus you have an equal chance of being in the bottom, middle or top of the earnings distribution. You will then receive what a typical individual at that place in the distribution might expect to earn each year for each of 25 "lab years."

At the end of each "lab year" we first calculate your "discretionary earnings" by subtracting from your "lab earnings" basic living expenses, which we set equal to 150% of the current federal poverty line, and withholding for Social Security and Medicare. From this we then subtract payments due on your student loan until the loan is either paid off or, in some cases, forgiven. The remainder (your "discretionary earnings" less any loan repayment) you will keep. These remaining "lab earnings" will be converted into real U.S. dollars at a rate of $1.50 per 100,000 "lab dollars" earned.

In addition, you will start the study with a gift of $8 real U.S. dollars.

If in any "lab year" your "discretionary earnings" are less than what you are required to repay on your student loan, your loan will go into default. If you default on your loan, you will receive a penalty in the loss of your $8 U.S. dollar gift in addition to a 10% penalty on all future "lab earnings" thereafter.