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Credit Constraints in Education

Author Info

Listed author(s):
  • Lance Lochner

    ()

    (Department of Economics and CIBC Centre for Human Capital and Productivity, University of Western Ontario, London, Ontario N6A 5C2, Canada)

  • Alexander Monge-Naranjo

    ()

    (Department of Economics, Pennsylvania State University, University Park, Pennsylvania 1680-3306)

Abstract

We review studies of the impact of credit constraints on the accumulation of human capital. Evidence suggests that credit constraints have recently become important for schooling and other aspects of households' behavior. We highlight the importance of early childhood investments, as their response largely determines the impact of credit constraints on the overall lifetime acquisition of human capital. We also review the intergenerational literature and examine the macroeconomic impacts of credit constraints on social mobility and the income distribution. A common limitation across all areas of the human capital literature is the imposition of ad hoc constraints on credit. We propose a more careful treatment of the structure of government student loan programs and the incentive problems underlying private credit. We show that endogenizing constraints on credit for human capital helps explain observed borrowing, schooling, and default patterns and offers new insights about the design of government policy.

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File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev-economics-080511-110920
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Article provided by Annual Reviews in its journal Annual Review of Economics.

Volume (Year): 4 (2012)
Issue (Month): 1 (07)
Pages: 225-256

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Handle: RePEc:anr:reveco:v:4:y:2012:p:225-256
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Keywords: human capital; incentive problems; government loans; early investments; social mobility;

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Find related papers by JEL classification:
  • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
  • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
  • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
  • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
  • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

References listed on IDEAS
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