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

Insuring College Failure Risk

Contents:

Author Info

  • Felicia Ionescu

    (Colgate University)

  • Satyajit Chatterjee

    (Federal Reserve Bank of Philadelphia)

Abstract

Under current law, participants in (college) student loan program must repay their loan in full regardless of whether they complete college. Dropout rate among college students from low-income background is anywhere between 33 to 50 percent. The combination of lack of family resources, unconstrained access to student loans and high dropout rates means that for a substantial fraction of low-income students the attempt to acquire a college degree ends in low earnings and high indebtedness. In this paper we examine whether the student loan program can gainfully offer insurance against college failure risk. We argue that such an insurance scheme is administratively feasible and provide conditions under which such insurance can be gainfully offered taking into account the constraints imposed by moral hazard. We show that the provision of such insurance will raise enrollment rates, dropout rates, and average welfare. The model is calibrated to US data on college costs, enrollment rates, college premium, and average indebtedness of program participants. Insurance against college failure risk raises enrollment rates by 4 percent, decreases college completion rate from 61 percent to 40 percent and increases welfare by about 0.24 percent.

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.economicdynamics.org/meetpapers/2008/paper_813.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 813.

as in new window
Length:
Date of creation: 2008
Date of revision:
Handle: RePEc:red:sed008:813

Contact details of provider:
Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Fax: 1-314-444-8731
Email:
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC

Related research

Keywords:

Other versions of this item:

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. Diego Restuccia & Carlos Urrutia, 2002. "Intergenerational Persistence of Earnings: The Role of Early and College Education," Working Papers diegor-02-03, University of Toronto, Department of Economics.
  2. Ahmet Akyol & Kartik Artheya, 2003. "Risky higher education and subsidies," Working Paper 03-02, Federal Reserve Bank of Richmond.
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:
  1. Lance J. Lochner & Alexander Monge-Naranjo, 2010. "The Nature of Credit Constraints and Human Capital," University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers 20101, University of Western Ontario, CIBC Centre for Human Capital and Productivity.
  2. Felicia Ionescu, 2009. "The Federal Student Loan Program: Quantitative Implications for College Enrollment and Default Rates," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 205-231, January.
  3. Ionescu, Felicia & Simpson, Nicole, 2010. "Credit Scores and College Investment," Working Papers 2010-07, Department of Economics, Colgate University.
  4. Ionescu, Felicia, 2009. "Risky College Investment under Alternative Bankruptcy Regimes for Student Loans," Working Papers 2009-01, Department of Economics, Colgate University.

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:red:sed008:813. 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: (Christian Zimmermann).

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.