IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Credit Scores and College Investment

The private market of student loans has become an important source of college financing in the U.S. Unlike government student loans, the terms on private student loans (i.e., credit limits and interest rates) are based on credit scores We quantify the effects of credit scores on college investment in a heterogeneous life-cycle economy that exhibits a government and private market for student loans. We find that students with higher credit scores invest in more college education. Furthermore, we find that the relationship between credit scores and college investment has important policy implications. For example, when government borrowing limits are relaxed, college investment increases but so does the riskiness of the pool of borrowers, leading to higher default rates in the private market. If private creditors react to the government policy (by adjusting loan terms to minimize default risk), college investment is offset, with poor students experiencing the largest reductions. The effects of credit scores on college investment are more pronounced when taking into account the recent drop in financial wealth for U.S. households.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://commons.colgate.edu/cgi/viewcontent.cgi?article=1013&context=econ_facschol
Download Restriction: no

Paper provided by Department of Economics, Colgate University in its series Working Papers with number 2010-07.

as
in new window

Length:
Date of creation: Aug 2010
Date of revision:
Handle: RePEc:cgt:wpaper:2010-07
Contact details of provider: Postal:
13 Oak Drive, Hamilton, NY 13346-1389

Phone: (315) 228-7533
Fax: (315) 228-7033
Web page: http://www.colgate.edu/academics/departments-and-programs/economics

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Todd R. Stinebrickner & Ralph Stinebrickner, 2007. "The Effect of Credit Constraints on the College Drop-Out Decision: A Direct Approach Using a New Panel Study," University of Western Ontario, Centre for Human Capital and Productivity (CHCP) Working Papers 20071, University of Western Ontario, Centre for Human Capital and Productivity (CHCP).
  2. Marco Cagetti & Mariacristina De Nardi, 2005. "Wealth inequality: data and models," Working Paper Series WP-05-10, Federal Reserve Bank of Chicago.
  3. Robert J. Willis & Sherwin Rosen, 1978. "Education and Self-Selection," NBER Working Papers 0249, National Bureau of Economic Research, Inc.
  4. Ralph Stinebrickner & Todd R. Stinebrickner, 2003. "Working during School and Academic Performance," Journal of Labor Economics, University of Chicago Press, vol. 21(2), pages 449-472, April.
  5. Kevin M. Murphy & Finis Welch, 1992. "The Structure of Wages," The Quarterly Journal of Economics, Oxford University Press, vol. 107(1), pages 285-326.
  6. Susan M. Dynarski, 2003. "Does Aid Matter? Measuring the Effect of Student Aid on College Attendance and Completion," American Economic Review, American Economic Association, vol. 93(1), pages 279-288, March.
  7. Igor Livshits & James MacGee & Michele Tertilt, 2005. "Consumer Bankruptcy: A Fresh Start," Discussion Papers 04-011, Stanford Institute for Economic Policy Research.
  8. Kjetil Storesletten & Chris I. Telmer & Amir Yaron, 2001. "How Important Are Idiosyncratic Shocks? Evidence from Labor Supply," American Economic Review, American Economic Association, vol. 91(2), pages 413-417, May.
  9. Lance J. Lochner & Alexander Monge-Naranjo, 2008. "The Nature of Credit Constraints and Human Capital," NBER Working Papers 13912, National Bureau of Economic Research, Inc.
  10. Stacy Berg Dale & Alan B. Krueger, 2002. "Estimating the Payoff to Attending a More Selective College: An Application of Selection on Observables and Unobservables," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1491-1527.
  11. Philippe Belley & Lance Lochner, 2007. "The Changing Role of Family Income and Ability in Determining Educational Achievement," Working Papers 2011-037, Human Capital and Economic Opportunity Working Group.
  12. Huggett, Mark & Ventura, Gustavo & Yaron, Amir, 2006. "Human capital and earnings distribution dynamics," Journal of Monetary Economics, Elsevier, vol. 53(2), pages 265-290, March.
  13. Flavio Cunha & James Heckman & Salvador Navarro, 2005. "Separating uncertainty from heterogeneity in life cycle earnings," Oxford Economic Papers, Oxford University Press, vol. 57(2), pages 191-261, April.
  14. Todd Schoellman & Lutz Hendricks, 2009. "Student Abilities During the Expansion of U.S. Education, 1950-2000," 2009 Meeting Papers 162, Society for Economic Dynamics.
  15. Thomas J. Kane & Cecilia E. Rouse, 1993. "Labor Market Returns to Two- and Four-Year Colleges: Is a Credit a Credit and Do Degrees Matter?," NBER Working Papers 4268, National Bureau of Economic Research, Inc.
  16. Diego Restuccia & Carlos Urrutia, 2004. "Intergenerational Persistence of Earnings: The Role of Early and College Education," American Economic Review, American Economic Association, vol. 94(5), pages 1354-1378, December.
  17. Shinichi Nishiyama, 2002. "Bequests, Inter Vivos Transfers, and Wealth Distribution," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(4), pages 892-931, October.
  18. Kartik B. Athreya & Xuan S. Tam & Eric R. Young, 2011. "A quantitative theory of information and unsecured credit," Working Paper 08-06, Federal Reserve Bank of Richmond.
  19. repec:fth:prinin:311 is not listed on IDEAS
  20. Mark P. Keightley & Carlos Garriga, 2009. "A General Equilibrium Theory of College with Education Subsidies, In-School Labor Supply, and Borrowing Constraints," 2009 Meeting Papers 1180, Society for Economic Dynamics.
  21. Stephen V. Cameron & Christopher Taber, 2004. "Estimation of Educational Borrowing Constraints Using Returns to Schooling," Journal of Political Economy, University of Chicago Press, vol. 112(1), pages 132-182, February.
  22. Keane, Michael P & Wolpin, Kenneth I, 2001. "The Effect of Parental Transfers and Borrowing Constraints on Educational Attainment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 1051-1103, November.
  23. Felicia Ionescu, 2009. "The Federal Student Loan Program: Quantitative Implications for College Enrollment and Default Rates," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 205-231, January.
  24. James Heckman & Edward Vytlacil, 2000. "Identifying the Role of Cognitive Ability in Explaining the Level of and Change in the Return to Schooling," NBER Working Papers 7820, National Bureau of Economic Research, Inc.
  25. John Bound & Michael F. Lovenheim & Sarah Turner, 2010. "Why Have College Completion Rates Declined? An Analysis of Changing Student Preparation and Collegiate Resources," American Economic Journal: Applied Economics, American Economic Association, vol. 2(3), pages 129-57, July.
  26. repec:pri:indrel:311 is not listed on IDEAS
  27. Pedro Carneiro & James J. Heckman, 2002. "The Evidence on Credit Constraints in Post-Secondary Schooling," NBER Working Papers 9055, National Bureau of Economic Research, Inc.
  28. David H. Autor & Frank Levy & Richard J. Murnane, 2003. "The Skill Content of Recent Technological Change: An Empirical Exploration," The Quarterly Journal of Economics, Oxford University Press, vol. 118(4), pages 1279-1333.
  29. Caroline Minter Hoxby, 2004. "Introduction to "College Choices: The Economics of Where to Go, When to Go, and How to Pay For It"," NBER Chapters, in: College Choices: The Economics of Where to Go, When to Go, and How to Pay For It, pages 1-12 National Bureau of Economic Research, Inc.
  30. Orley Ashenfelter & Cecilia Rouse, 1998. "Income, Schooling, and Ability: Evidence from a New Sample of Identical Twins," The Quarterly Journal of Economics, Oxford University Press, vol. 113(1), pages 253-284.
  31. Jorge Soares, 2008. "Borrowing Constraints, Parental Altruism and Welfare," Working Papers 08-12, University of Delaware, Department of Economics.
  32. Thomas J. Kane & Cecilia Rouse, 1993. "Labor Market Returns to Two- And Four-Year College: Is A Credit a Credit And Do Degrees Matter?," Working Papers 690, Princeton University, Department of Economics, Industrial Relations Section..
  33. Caroline M. Hoxby, 2004. "College Choices: The Economics of Where to Go, When to Go, and How to Pay For It," NBER Books, National Bureau of Economic Research, Inc, number hoxb04-1.
  34. Felicia Ionescu & Satyajit Chatterjee, 2008. "Insuring College Failure Risk," 2008 Meeting Papers 813, Society for Economic Dynamics.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cgt:wpaper:2010-07. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chad Sparber)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.