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The Federal Student Loan Program: Quantitative Implications for College Enrollment and Default Rates

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Abstract

I quantify the effects of alternative student loan policies on college enrollment, bor- rowing behavior, and default rates in a heterogeneous model of life-cycle earnings and human capital accumulation. I find that the combination of learning ability and initial human capital stock drives the decision to enroll in college while parental wealth has minimal effects on enrollment. Repayment flexibility increases enrollment significantly, whereas relaxation of eligibility requirements has little effect on enrollment or default rates. The former policy induces substantial welfare gains for bottom income quantiles, while the latter implies minimal welfare gains for bottom income quantiles.

Suggested Citation

  • Ionescu, Anamaria, 2008. "The Federal Student Loan Program: Quantitative Implications for College Enrollment and Default Rates," Working Papers 2007-04, Department of Economics, Colgate University.
  • Handle: RePEc:cgt:wpaper:2007-04
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    More about this item

    Keywords

    Student loans; Human capital; Default;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy

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