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The Nature of Credit Constraints and Human Capital

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  • Lance J. Lochner
  • Alexander Monge-Naranjo

Abstract

We develop a human capital model with borrowing constraints explicitly derived from government student loan (GSL) programs and private lending under limited commitment. The model helps explain the persistent strong positive correlation between ability and schooling in the United States, as well as the rising importance of family income for college attendance. It also explains the increasing share of undergraduates borrowing the GSL maximum and the rise in student borrowing from private lenders. Our framework offers new insights regarding the interaction of government and private lending, as well as the responsiveness of private credit to economic and policy changes. (JEL D14, H52, I22, I23, J24)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.6.2487
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 101 (2011)
Issue (Month): 6 (October)
Pages: 2487-2529

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Handle: RePEc:aea:aecrev:v:101:y:2011:i:6:p:2487-2529
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Find related papers by JEL classification:
  • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
  • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
  • I28 - Health, Education, and Welfare - - Education - - - Government Policy

References listed on IDEAS
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