People Respond to Incentives

One of the hallmarks of economic thought, one of the beliefs that binds those in our discipline, is that people respond to incentives.  Case in point:

Thousands of college students and parents are clogging phone lines and rushing to Internet sites in a scramble to refinance college loans before a sharp interest rate increase this weekend.

An almost 2 percentage point interest rate increase for federal student loans kicks in Saturday, and advisers say that not refinancing could cost thousands of additional dollars in interest in the decades after a student enters the work force.