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The Federal Student Loan Program: Quantitative Implications for College Enrollment and Default Rates

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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.

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File URL: http://commons.colgate.edu/cgi/viewcontent.cgi?article=1003&context=econ_facschol
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Paper provided by Department of Economics, Colgate University in its series Working Papers with number 2007-04.

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Date of creation: Jun 2008
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Handle: RePEc:cgt:wpaper:2007-04

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Keywords: Student loans; Human capital; Default;

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Citations

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Cited by:
  1. Holter, Hans A, 2011. "Accounting for Cross-Country Differences in Intergenerational Earnings Persistence: The Impact of Taxation and Public Education Expenditure," Working Paper Series 2011:21, Uppsala University, Department of Economics.
  2. Nicole Simpson & Felicia Ionescu, 2010. "Credit Scores and College Investment," 2010 Meeting Papers 666, Society for Economic Dynamics.
  3. Robert J. Gary-Bobo & Alain Trannoy, 2013. "Optimal Student Loans and Graduate Tax under Moral Hazard and Adverse Selection," CESifo Working Paper Series 4279, CESifo Group Munich.
  4. Fang Yang & John Bailey Jones, . "Skill-Biased Technical Change and the Cost of Higher Education," Departmental Working Papers 2014-09, Department of Economics, Louisiana State University.
  5. Gonzalo Castex, 2011. "College Risk and Return," Working Papers Central Bank of Chile 606, Central Bank of Chile.
  6. John Bailey Jones & Fang (Annie) Yang, 2011. "Skill-Biased Technical Change and the Cost of Higher Education: An Exploratory Model," Discussion Papers 11-02, University at Albany, SUNY, Department of Economics.
  7. Gonzalo Castex, 2010. "Accounting for Changes in College Attendance Profile: a Quantitative Life-Cycle Analysis," Working Papers Central Bank of Chile 598, Central Bank of Chile.

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