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Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs

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  • David O Lucca
  • Taylor Nadauld
  • Karen Shen

Abstract

We study the link between the student credit expansion of the past 15 years and the contemporaneous rise in college tuition. To disentangle simultaneity issues, we analyze the effects of increases in federal student loan caps using detailed student-level financial data. We find a pass-through effect on tuition of changes in subsidized loan maximums of about 60 cents on the dollar and of about 20 cents on the dollar for unsubsidized federal loans. The effect is most pronounced for more expensive degrees and degrees offered by for-profit and 2-year institutions. Received February 23, 2017; editorial decision March 8, 2018 by Editor Wei Jiang. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • David O Lucca & Taylor Nadauld & Karen Shen, 2019. "Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs," The Review of Financial Studies, Society for Financial Studies, vol. 32(2), pages 423-466.
    • Handle: RePEc:oup:rfinst:v:32:y:2019:i:2:p:423-466.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhy069
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    Cited by:

    1. Marco Di Maggio & Ankit Kalda & Vincent Yao, 2019. "Second Chance: Life without Student Debt," NBER Working Papers 25810, National Bureau of Economic Research, Inc.
    2. Craig A. Depken & Tomislav Globan, 2021. "Football transfer fee premiums and Europe's big five," Southern Economic Journal, John Wiley & Sons, vol. 87(3), pages 889-908, January.
    3. Catherine, Sylvain & Yannelis, Constantine, 2023. "The distributional effects of student loan forgiveness," Journal of Financial Economics, Elsevier, vol. 147(2), pages 297-316.
    4. Mello, João M. P. De & Duarte, Isabela F., 2020. "The effect of the availability of student credit on tuition: testing the Bennett hypothesis using evidence from a large-scale student loan program in Brazil," LSE Research Online Documents on Economics 123092, London School of Economics and Political Science, LSE Library.
    5. Tim Zhang, 2022. "Uniform Mortgage Regulation and Distortion in Capital Allocation [Loan originations and defaults in the mortgage crisis: the role of the middle class]," Review of Finance, European Finance Association, vol. 26(4), pages 1011-1050.
    6. Majilla, Tanmoy, 2025. "Shadow education, intra-household financial resource allocation, and educational achievements," Journal of Economic Behavior & Organization, Elsevier, vol. 233(C).
    7. Grey Gordon & Aaron Hedlund, 2017. "Accounting for the Rise in College Tuition," NBER Chapters, in: Education, Skills, and Technical Change: Implications for Future US GDP Growth, pages 357-394, National Bureau of Economic Research, Inc.
    8. Lowry, Danielle & Page, Lindsay C. & Nurshatayeva, Aizat & Iriti, Jennifer, 2024. "Subtraction by addition: Do private scholarship awards lead to financial aid displacement?," Economics of Education Review, Elsevier, vol. 99(C).
    9. Sandra E. Black & Jeffrey T. Denning & Lisa J. Dettling & Sarena Goodman & Lesley J. Turner, 2023. "Taking It to the Limit: Effects of Increased Student Loan Availability on Attainment, Earnings, and Financial Well-Being," American Economic Review, American Economic Association, vol. 113(12), pages 3357-3400, December.
    10. Ulrike Malmendier, 2018. "Behavioral Corporate Finance," NBER Working Papers 25162, National Bureau of Economic Research, Inc.
    11. Kalliyil, Muneer & Sahoo, Soham, 2024. "Does Restricting Access to Credit Affect Learning Outcomes? Evidence from a Regulatory Shock to Microfinance in India," IZA Discussion Papers 17404, Institute of Labor Economics (IZA).
    12. Boutros, Michael & Clara, Nuno & Gomes, Francisco, 2024. "Borrow now, pay even later: A quantitative analysis of student debt payment plans," Journal of Financial Economics, Elsevier, vol. 159(C).
    13. Rodrigo Azuero & David Zarruk Valencia, 2016. "The Effects of Student Loans on the Provision and Demand for Higher Education," PIER Working Paper Archive 17-020, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 22 Oct 2017.
    14. Looney, Adam & Yannelis, Constantine, 2022. "The consequences of student loan credit expansions: Evidence from three decades of default cycles," Journal of Financial Economics, Elsevier, vol. 143(2), pages 771-793.
    15. Michael Boutros & Nuno Clara & Francisco Gomes, 2023. "Borrow Now, Pay Even Later: A Quantitative Analysis of Student Debt Payment Plans," Staff Working Papers 23-54, Bank of Canada.

    More about this item

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid

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