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Risky Human Capital and Alternative Bankruptcy Regimes for Student Loans

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  • Felicia Ionescu

Abstract

In a heterogeneous life cycle economy with human capital accumulation, the option to discharge student loans under a liquidation regime helps alleviate some of the risk of investing in human capital. However, exclusion from borrowing is especially costly for high school graduates with low ability and human capital, for whom the gains from this insurance option are large. Replacing liquidation with reorganization induces significant allocational consequences across education groups. Overall, reorganization improves welfare relative to liquidation. Poor high school graduates with low ability and human capital benefit the most. However, an economy with partial dischargeability is desirable on welfare grounds.

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File URL: http://www.jstor.org/stable/pdfplus/10.1086/661744
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File URL: http://www.jstor.org/stable/full/10.1086/661744
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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Human Capital.

Volume (Year): 5 (2011)
Issue (Month): 2 ()
Pages: 153 - 206

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Handle: RePEc:ucp:jhucap:doi:10.1086/661744

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Web page: http://www.journals.uchicago.edu/JHC/

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Cited by:
  1. Schwager, Robert, 2012. "Student loans in a tiebout model of higher education," Center for European, Governance and Economic Development Research Discussion Papers 137, University of Goettingen, Department of Economics.
  2. Lance Lochner & Alexander Monge-Naranjo, 2011. "Credit Constraints in Education," NBER Working Papers 17435, National Bureau of Economic Research, Inc.
  3. Schwager, Robert, 2012. "Student loans in a tiebout model of higher education," Center for European, Governance and Economic Development Research Discussion Papers 137, University of Goettingen, Department of Economics.
  4. Jeffrey Brown & Chichun Fang & Francisco Gomes, 2012. "Risk and Returns to Education," NBER Working Papers 18300, National Bureau of Economic Research, Inc.

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