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Grants or Loans? Theoretical Issues Regarding Access and Persistence in Postsecondary Education

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  • Lorne Carmichael

    ()
    (Queen's University)

  • Ross Finnie

    (University of Ottawa)

Abstract

Most economic investigations of access to education treat an investment in college or university as if it were a financial investment offering a particular expected rate of return. Since the average measured rates of return are quite favourable, other factors such as lack of information, contrary parental infl�uence, or "debt aversion" must be invoked to explain the unwillingness of some qualified students from poorer backgrounds to borrow money and attend. However, a model that recognizes the hardship associated with low levels of expenditure suggests that, ceteris paribus, poorer students will actually need a higher measured rate of return before they will decide to attend. The result holds even when there is an efficient student loan system. This approach can provide some normative guidance for decisions about the choice of grants or loans as vehicles for student aid, and has positive implications about the effects of grants and loans on access and persistence.

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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1154.pdf
File Function: First version 2007
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Bibliographic Info

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1154.

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Length: 31 pages
Date of creation: Dec 2007
Date of revision:
Handle: RePEc:qed:wpaper:1154

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Keywords: postsecondary education; educational subsidies; student loans; equal access; hyperbolic preferences;

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  1. Hoenack, Stephen A, 1971. "The Efficient Allocation of Subsidies to College Students," American Economic Review, American Economic Association, vol. 61(3), pages 302-11, June.
  2. Enrico Moretti, 2002. "Estimating the Social Return to Higher Education: Evidence From Longitudinal and Repeated Cross-Sectional Data," NBER Working Papers 9108, National Bureau of Economic Research, Inc.
  3. Kenkel, D.S., 1988. "Health Behavior, Health Knowledge, And Schooling," Papers 10-88-3, Pennsylvania State - Department of Economics.
  4. H. Lorne Carmichael, 1999. "Restructuring the University System: What Level of Public Support?," Canadian Public Policy, University of Toronto Press, vol. 25(1), pages 133-140, March.
  5. Johnson, George E, 1984. "Subsidies for Higher Education," Journal of Labor Economics, University of Chicago Press, vol. 2(3), pages 303-18, July.
  6. Andrea Bassanini & Stefano Scarpetta, 2001. "Does Human Capital Matter for Growth in OECD Countries?: Evidence from Pooled Mean-Group Estimates," OECD Economics Department Working Papers 282, OECD Publishing.
  7. Lance Lochner & Enrico Moretti, 2001. "The Effect of Education on Crime: Evidence from Prison Inmates, Arrests, and Self-Reports," NBER Working Papers 8605, National Bureau of Economic Research, Inc.
  8. Gary S. Becker, 1975. "Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education, 2nd ed," NBER Books, National Bureau of Economic Research, Inc, number beck75-1, July.
  9. McPherson, Michael S & Schapiro, Morton Owen, 1991. "Does Student Aid Affect College Enrollment? New Evidence on a Persistent Controversy," American Economic Review, American Economic Association, vol. 81(1), pages 309-18, March.
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