**Table 2: Contract and  Selection Effects in Default**

||(1)<br>Standard<br>Contract|(2)<br>Flexible<br>Contract<br>(Pooling<br>Offer Types)|(3)<br>Overall<br>Comparison|(4)<br>No-Surprise<br>Flexible<br>Contract|(5)<br>Surprise<br>Flexible<br>Contract|(6)<br>Selection Effect|(7)<br>Contract Effect|
|---|---|---|---|---|---|---|---|
||Std→Std|Std→Flex &<br>Flex→Flex|Std Contract =<br>Flex Contract|Flex→Flex|Std→Flex|Flex→Flex =<br>Std→Flex|Std→Std =<br>Std→Flex|
||||(1)=(2)|||(4)=(5)|(1)=(5)|
|_Dependent variable_|Mean<br>(SD)|Mean<br>(SD)|p-value|Mean<br>(SD)|Mean<br>(SD)|p-value|p-value|
|**Panel A: Default, unadjusted**||||||||
|Proportion of principal in default at 3 months post maturity|0.13<br>|0.16<br>|0.00|0.15<br>|0.16<br>|0.67|0.00|
||(0.21)|(0.23)||(0.23)|(0.23)|||
|Proportion of principal in default at 12 months post maturity|0.10|0.13|0.00|0.12|0.13|0.62|0.01|
||(0.19)|(0.22)||(0.21)|(0.22)|||
|Missed a due payment (=1)|0.58|0.61|0.14|0.61|0.62|0.78|0.18|
||(0.49)|(0.49)||(0.49)|(0.49)|||
|Got a new loan (=1)|0.33<br>(0.47)|0.33<br>(0.47)|0.69|0.33<br>(0.47)|0.33|0.72|0.83|
|Number of observations|922|1,553|2,475|582|971|1,553|1,893|
|**Panel B: Default, residuals after predicting default with observables**||||||||
|Proportion of principal in default at 3 months post maturity|0.00|0.03|0.00|0.03|0.03|0.83|0.00|
||(0.20)|(0.23)||(0.22)|(0.23)|||
|Proportion of principal in default at 12 months post maturity|0.00|0.02|0.00|0.02|0.03|0.76|0.01|
||(0.19)|(0.21)||(0.20)|(0.21)|||
|Missed a due payment (=1)|0.00|0.02|0.20|0.01|0.03|0.89|0.18|
||(0.47)|(0.48)||(0.48)|(0.48)|||
|Got a new loan (=1)|0.00|-0.01|0.70|-0.01|-0.01|0.90|0.76|
||(0.45)|(0.46)||(0.46)|(0.46)|||
|Number of observations|922|1,553|2,475|582|971|1,553|1,893|

Notes: In Panel B, we obtain residuals after regressing default outcomes on the 18 observable characteristics from Table 1 for the Standard Contract group, controlling for treatment assignment probability. P-values based on regressions that control for treatment assignment probability; for additional details, see Section 4. Note on outstanding principal: 238 borrowers have a slightly incorrect version of the outcome variable “remaining outstanding principal.” Outstanding principal comes from FMSD administrative data. FMSD also provide us with the loan’s repayment status over time. We see exactly when the lender classifies a loan as delinquent and subsequently “cancels” the loan. The initial administrative data did not report payments after the loan was “canceled.” The bank offered these delinquent borrowers an opportunity to restructure their remaining debt after their loan got “canceled.” These borrowers had the opportunity to continue paying outstanding principal with reduced interest and fees. Since these payments occur after the bank cancels the loan, we do not observe whether delinquent borrowers continue paying their loans. Furthermore, we do not observe the reduction in interest and fees that the bank offers to customers as a part of the re-structuring. In order to properly record payments that delinquent borrowers make, we obtain lender administrative data on every payment that our sample borrowers make from 2015 to 2019. By merging the payment records with the rest of the administrative data, we observe payments that delinquent borrowers make after the bank canceled their loan and reaches out with a restructured proposal. We subtract the payments that borrowers make after their loan gets canceled from their last outstanding principal before the bank “canceled” their loan. The payment data do not distinguish between principal, interest, and fees. We only observe the payment that each borrower makes in a given month. Since our outcome variable is outstanding principal, subtracting a payment that includes interest and fees gives us an incorrect calculation of a borrower’s outstanding principal. This means that the 238 borrowers who repay after the borrower cancels their loan have an incorrect measure of outstanding principal for the time after their loan gets canceled.