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

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.

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File URL: http://commons.colgate.edu/cgi/viewcontent.cgi?article=1003&context=econ_facschol
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Paper provided by Department of Economics, Colgate University in its series Working Papers with number 2007-04.

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Date of creation: Jun 2008
Handle: RePEc:cgt:wpaper:2007-04
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Web page: http://www.colgate.edu/academics/departments-and-programs/economics

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