Document Type

Working Paper

Publication Date

Summer 6-2008

JEL Codes

D91, E44, J24, I28

Working Paper Number

2007-04

Abstract

I quantify the effects of alternative student loan policies on college enrollment, bor- rowing behavior, and default rates in a heterogeneous model of life-cycle earnings and human capital accumulation. I find that the combination of learning ability and initial human capital stock drives the decision to enroll in college while parental wealth has minimal effects on enrollment. Repayment flexibility increases enrollment significantly, whereas relaxation of eligibility requirements has little effect on enrollment or default rates. The former policy induces substantial welfare gains for bottom income quantiles, while the latter implies minimal welfare gains for bottom income quantiles.

Acknowledgements

A special thanks to B. Ravikumar, Nicole Simpson, Chris Sleet, Galina Vereshchagina, and Steve Williamson for their valuable advice. I also thank seminar participants at the University of Iowa, the Cleveland Fed, the Liberal Arts Colleges Series, and the Midwest Macro Meetings for useful comments, especially Ahmed Akyol, Kartik Athreya, Marina Azzimonti, Satyajit Chatterjee, Dean Corbae, Michael O’Hara, Elena Pastorino, Linnea Polgreen, Peter Rupert, Pedro Silos, Chad Sparber, Robert Tamura, Guillaume Vandenbroucke, and Gustavo Ventura.

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Economics Commons

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