Advanced Search
MyIDEAS: Login to save this paper or follow this series

A New Test of Borrowing Constraints for Education

Contents:

Author Info

  • Meta Brown
  • John Karl Scholz
  • Ananth Seshadri

Abstract

We discuss a simple model of intergenerational transfers with one-sided altruism: parents care about their child but the child does not reciprocate. Parents and children make investments in the child’s education, investments for other purposes, and parents can transfer cash to their child. We show that for an identifiable set of parent-child pairs, parents will rationally under-invest in their child’s education. For these parent-child pairs, additional financial aid will increase educational attainment. The model highlights an important feature of higher education finance, the “expected family contribution” (EFC) that is based on income, assets, and other factors. The EFC is neither legally guaranteed nor universally offered: Our model identifies the set of families that are disproportionately likely to not provide their full EFC. Using a common proxy for financial aid, we show, using of data from the Health and Retirement Study, that financial aid increases the educational attainment of children whose families are disproportionately likely to under-invest in education. Financial aid has no effect on the educational attainment of children in other families. The theory and empirical evidence identifies a set of children who face quantitatively important borrowing constraints for higher education.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w14879.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14879.

as in new window
Length:
Date of creation: Apr 2009
Date of revision:
Publication status: published as Meta Brown & John Karl Scholz & Ananth Seshadri, 2012. "A New Test of Borrowing Constraints for Education," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 511-538.
Handle: RePEc:nbr:nberwo:14879

Note: CH ED PE
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Philippe Belley & Lance Lochner, 2007. "The Changing Role of Family Income and Ability in Determining Educational Achievement," NBER Working Papers 13527, National Bureau of Economic Research, Inc.
  2. Altonji, Joseph G & Hayashi, Fumio & Kotlikoff, Laurence J, 1997. "Parental Altruism and Inter Vivos Transfers: Theory and Evidence," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(6), pages 1121-66, December.
  3. Kane, Thomas J, 1994. "College Entry by Blacks since 1970: The Role of College Costs, Family Background, and the Returns to Education," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 102(5), pages 878-911, October.
  4. Bruce, Neil & Waldman, Michael, 1991. "Transfers in Kind: Why They Can Be Efficient and Nonpaternalistic," American Economic Review, American Economic Association, American Economic Association, vol. 81(5), pages 1345-51, December.
  5. Kane, Thomas J., 1998. "Savings Incentives for Higher Education," National Tax Journal, National Tax Association, vol. 51(n. 3), pages 609-20, September.
  6. Robert M. Sauer, 2004. "Educational Financing and Lifetime Earnings," Review of Economic Studies, Oxford University Press, vol. 71(4), pages 1189-1216.
  7. John Shea, 1997. "Does Parents' Money Matter?," NBER Working Papers 6026, National Bureau of Economic Research, Inc.
  8. Carneiro, Pedro & Heckman, James J., 2002. "The Evidence on Credit Constraints in Post-Secondary Schooling," IZA Discussion Papers 518, Institute for the Study of Labor (IZA).
  9. W. G. Gale & J. K. Scholz, . "Intergenerational transfers and the accumulation of wealth," Institute for Research on Poverty Discussion Papers, University of Wisconsin Institute for Research on Poverty 1019-93, University of Wisconsin Institute for Research on Poverty.
  10. Audrey Light & Kathleen McGarry, 2003. "Why Parents Play Favorites: Explanations for Unequal Bequests," NBER Working Papers 9745, National Bureau of Economic Research, Inc.
  11. Stephen V. Cameron & James J. Heckman, 1998. "Life Cycle Schooling and Dynamic Selection Bias: Models and Evidence for Five Cohorts of American Males," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 106(2), pages 262-333, April.
  12. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
  13. Keane, Michael P & Wolpin, Kenneth I, 2001. "The Effect of Parental Transfers and Borrowing Constraints on Educational Attainment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 1051-1103, November.
  14. Henry S. Farber & Jeffrey R. Kling & Alan Krueger, 1999. "Interpreting Instrumental Variables Estimates of the Returns to Schooling," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 794, Princeton University, Department of Economics, Industrial Relations Section..
  15. Bruce, Neil & Waldman, Michael, 1990. "The Rotten-Kid Theorem Meets the Samaritan's Dilemma," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(1), pages 155-65, February.
  16. Altonji, Joseph G & Hayashi, Fumio & Kotlikoff, Laurence J, 1992. "Is the Extended Family Altruistically Linked? Direct Tests Using Micro Data," American Economic Review, American Economic Association, American Economic Association, vol. 82(5), pages 1177-98, December.
  17. Jesse Rothstein & Cecilia Elena Rouse, 2007. "Constrained After College: Student Loans and Early Career Occupational Choices," NBER Working Papers 13117, National Bureau of Economic Research, Inc.
  18. Martin Browning & Lars Peter Hansen & James J. Heckman, 1999. "Micro Data and General Equilibrium Models," Discussion Papers, University of Copenhagen. Department of Economics 99-10, University of Copenhagen. Department of Economics.
  19. Ralph Stinebrickner & Todd R. Stinebrickner, 2003. "Working during School and Academic Performance," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 21(2), pages 449-472, April.
  20. Pollak, Robert A, 1988. "Tied Transfers and Paternalistic Preferences," American Economic Review, American Economic Association, American Economic Association, vol. 78(2), pages 240-44, May.
  21. Thomas J. Kane & Cecilia Elena Rouse, 1999. "The Community College: Educating Students at the Margin between College and Work," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 13(1), pages 63-84, Winter.
  22. Liliana E. Pezzin & Robert A. Pollak & Barbara S. Schone, 2007. "Efficiency in Family Bargaining: Living Arrangements and Caregiving Decisions of Adult Children and Disabled Elderly Parents," CESifo Economic Studies, CESifo, CESifo, vol. 53(1), pages 69-96, March.
  23. Heckman, James J, 1974. "Life Cycle Consumption and Labor Supply: An Explanation of the Relationship Between Income and Consumption Over the Life Cycle," American Economic Review, American Economic Association, American Economic Association, vol. 64(1), pages 188-94, March.
  24. Charles T. Clotfelter & Michael Rothschild, 1993. "Studies of Supply and Demand in Higher Education," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number clot93-1.
  25. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 75, pages 352.
  26. McGarry, K & Schoeni, R-F, 1996. "Measurement and the Redistribution of Resources Within the Family," Papers, RAND - Reprint Series 96-11, RAND - Reprint Series.
  27. Maria Perozek, 2005. "Escaping the Samaritan's Dilemma: implications of a dynamic model of altruistic intergenerational transfers," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2005-67, Board of Governors of the Federal Reserve System (U.S.).
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:14879. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.