The Availability and Utilization of 401(k) Loans

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The Availability and Utilization of 401(k) Loans

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Title: The Availability and Utilization of 401(k) Loans
Author: Beshears, John Leonard; Choi, James J; Laibson, David I.; Madrian, Brigitte

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Citation: Beshears, John, James J. Choi, David Laibson, and Brigitte C. Madrian. 2011. The Availability and Utilization of 401(k) Loans. HKS Faculty Research Working Paper Series RWP11-023, John F. Kennedy School of Government, Harvard University
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Abstract: We document the loan provisions in 401(k) savings plans and how participants use 401(k) loans. Although only about 22% of savings plan participants who are allowed to borrow from their 401(k) have such a loan at any given point in time, almost half had used a 401(k) loan over a longer, seven-year horizon. The probability of having a loan follows a hump-shaped pattern with respect to age, job tenure, account balance, and salary, but conditional on having a loan, loan size as a fraction of 401(k) balances declines with respect to these variables. Participants are less likely to use loans in plans that charge a higher interest rate, and loans are smaller when plans allow fewer simultaneously outstanding loans, impose a shorter maximum possible loan duration, or charge a lower interest rate.
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