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The Nature of Credit Constraints and Human Capital

  • Lance Lochner

    ()

    (University of Western Ontario and NBER)

  • Alexander Monge-Naranjo

    ()

    (Pennsylvania State University)

We develop a human capital model with borrowing constraints explicitly derived from government student loan (GSL) programs and private lending under limited commitment. The model helps explain the persistent strong positive correlation between ability and schooling in the U.S., as well as the rising importance of family income for college attendance. It also explains the increasing share of undergraduates borrowing the GSL maximum and the rise in student borrowing from private lenders. Our framework offers new insights regarding the interaction of government and private lending as well as the responsiveness of private credit to economic and policy changes.

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File URL: http://humcap.uchicago.edu/RePEc/hka/wpaper/Lochner_Monge-Naranjo_2010_nature-credit-constraints.pdf
File Function: First version, August 26, 2010
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File URL: http://www.econ.psu.edu/~aum26/AER_Monge.pdf
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Paper provided by Human Capital and Economic Opportunity Working Group in its series Working Papers with number 2011-024.

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Date of creation: Aug 2010
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Handle: RePEc:hka:wpaper:2011-024
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