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Credit Constraints in the Demand for Education: Evidence from Survey Data

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  • Sorokina, Olga V.

Abstract

How important are liquidity constraints in the demand for college education in the U.S.? Who is most likely to be affected? Persistent credit constraints can lead to inefficient skill allocations and, given the wide gap between college and high school earnings, can work to perpetuate imbalances in the distribution of economic well-being. Unfortunately, empirical evidence regarding the pervasiveness of credit constraints in the demand for college education has not been consistent in part because constraints tend to be inferred indirectly and approaches for gauging them differ. In contrast with existing studies I use a measure that is more direct, namely self-reported financial constraints available in the National Longitudinal Survey of Youth. I find that about 13 percent of college-age individuals expect to underinvest in education because of financial limitations. These are the youths from less well-off families who live in areas with no universities in the vicinity. The findings of this paper suggest that liquidity constraints are potentially more pervasive than earlier studies indicate.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11932.

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Date of creation: 15 Nov 2008
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Handle: RePEc:pra:mprapa:11932

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Keywords: Credit Constraints; Expectations; Demand for Education;

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References

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  1. Philippe Belley & Lance Lochner, 2007. "The Changing Role of Family Income and Ability in Determining Educational Achievement," Working Papers 2011-037, Human Capital and Economic Opportunity Working Group.
  2. James J. Heckman, 1999. "Policies to Foster Human Capital," NBER Working Papers 7288, National Bureau of Economic Research, Inc.
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  4. Daron Acemoglu & Jorn-Steffen Pischke, 2000. "Changes in the Wage Structure, Family Income, and Children's Education," NBER Working Papers 7986, National Bureau of Economic Research, Inc.
  5. Ralph Stinebrickner & Todd Stinebrickner, 2008. "The Effect of Credit Constraints on the College Drop-Out Decision: A Direct Approach Using a New Panel Study," American Economic Review, American Economic Association, vol. 98(5), pages 2163-84, December.
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  7. David Card, 2000. "Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems," NBER Working Papers 7769, National Bureau of Economic Research, Inc.
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  12. Pedro Carneiro & James J. Heckman, 2002. "The Evidence on Credit Constraints in Post--secondary Schooling," Economic Journal, Royal Economic Society, vol. 112(482), pages 705-734, October.
  13. John Fender & Ping Wang, 2003. "Educational Policy in a Credit Constrained Economy with Skill Heterogeneity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(3), pages 939-964, 08.
  14. Jappelli, Tullio, 1990. "Who Is Credit Constrained in the U.S. Economy?," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 219-34, February.
  15. Cecilia Elena Rouse, 2004. "Low-Income Students and College Attendance: An Exploration of Income Expectations-super-," Social Science Quarterly, Southwestern Social Science Association, vol. 85(5), pages 1299-1317.
  16. Susan Dynarski, 2002. "The Behavioral and Distributional Implications of Aid for College," American Economic Review, American Economic Association, vol. 92(2), pages 279-285, May.
  17. Averett, Susan L. & Burton, Mark L., 1996. "College attendance and the college wage premium: Differences by gender," Economics of Education Review, Elsevier, vol. 15(1), pages 37-49, February.
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