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Risky Human Capital and Alternative Bankruptcy Regimes for Student Loans

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  • Felicia Ionescu

Abstract

In a heterogeneous life cycle economy with human capital accumulation, the option to discharge student loans under a liquidation regime helps alleviate some of the risk of investing in human capital. However, exclusion from borrowing is especially costly for high school graduates with low ability and human capital, for whom the gains from this insurance option are large. Replacing liquidation with reorganization induces significant allocational consequences across education groups. Overall, reorganization improves welfare relative to liquidation. Poor high school graduates with low ability and human capital benefit the most. However, an economy with partial dischargeability is desirable on welfare grounds.

Suggested Citation

  • Felicia Ionescu, 2011. "Risky Human Capital and Alternative Bankruptcy Regimes for Student Loans," Journal of Human Capital, University of Chicago Press, vol. 5(2), pages 153-206.
  • Handle: RePEc:ucp:jhucap:doi:10.1086/661744
    DOI: 10.1086/661744
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    Cited by:

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    2. Ionescu, Felicia & Simpson, Nicole, 2016. "Default risk and private student loans: Implications for higher education policies," Journal of Economic Dynamics and Control, Elsevier, vol. 64(C), pages 119-147.
    3. Lance Lochner & Alexander Monge-Naranjo, 2014. "Student Loans and Repayment: Theory, Evidence and Policy," Working Papers 2014-40, Federal Reserve Bank of St. Louis.
    4. Long, Ngo Van, 2019. "Financing higher education in an imperfect world," Economics of Education Review, Elsevier, vol. 71(C), pages 23-31.
    5. repec:got:cegedp:137 is not listed on IDEAS
    6. Lance Lochner & Alexander Monge-Naranjo, 2012. "Credit Constraints in Education," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 225-256, July.
    7. Nadia Karamcheva & Jeffrey Perry & Constantine Yannelis, 2020. "Income-Driven Repayment Plans for Student Loans: Working Paper 2020-02," Working Papers 56337, Congressional Budget Office.
    8. Matsuda, Kazushige, 2020. "Optimal timing of college subsidies: Enrollment, graduation, and the skill premium," European Economic Review, Elsevier, vol. 129(C).
    9. Roberto M. Samaniego & Juliana Yu Sun, 2019. "Entrepreneurship, College, and Credit: The Golden Triangle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(7), pages 1765-1813, October.
    10. Jeffrey Brown & Chichun Fang & Francisco Gomes, 2012. "Risk and Returns to Education," NBER Working Papers 18300, National Bureau of Economic Research, Inc.
    11. Schwager, Robert, 2012. "Student loans in a tiebout model of higher education," Center for European, Governance and Economic Development Research Discussion Papers 137, University of Goettingen, Department of Economics.
    12. Aaron Hedlund & Grey Gordon, 2017. "Accounting for Tuition Increases at U.S. Colleges," 2017 Meeting Papers 1550, Society for Economic Dynamics.
    13. Brown, Jeffrey R. & Fang, Chichun & Gomes, Francisco, 2015. "Risks and returns to education over time," CFS Working Paper Series 512, Center for Financial Studies (CFS).

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