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Borrowing Constraints, College Aid, and Intergenerational Mobility

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  • Eric A. Hanushek
  • Charles Ka Yui Leung
  • Kuzey Yilmaz

Abstract

This paper provides a consistent comparison of general tuition subsidies, need-based student aid, merit-based student aid, and income-contingent loans (ICL). Each of these policies is analyzed through a dynamic general equilibrium model in which individuals differ in family wealth and opportunities of completing college. The overlapping-generation structure of the model permits evaluation of different aid schemes in their implications on the aggregate outcomes, income distribution, and intergenerational mobility. Compared to current US tuition and loan policies, the ICL and need-based policies are most effective in promoting aggregate efficiency and income equality, while merit-based policies are least effective.

Suggested Citation

  • Eric A. Hanushek & Charles Ka Yui Leung & Kuzey Yilmaz, 2014. "Borrowing Constraints, College Aid, and Intergenerational Mobility," Journal of Human Capital, University of Chicago Press, vol. 8(1), pages 1-41.
    • Handle: RePEc:ucp:jhucap:doi:10.1086/675501
    DOI: 10.1086/675501
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    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • I2 - Health, Education, and Welfare - - Education

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