IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp12239.html
   My bibliography  Save this paper

Maxed Out? The Effect of Larger Student Loan Limits on Borrowing and Education Outcomes

Author

Listed:
  • Denning, Jeffrey T.

    () (Brigham Young University)

  • Jones, Todd R.

    () (Mississippi State University)

Abstract

Despite large and growing student loan balances, there is relatively little evidence on the effects of access to student loans on borrowing and educational outcomes. We examine the effect of access to credit by using policy variation in the maximum federal student loan amounts available to U.S. college students. In particular, first-, second-, and third-year students have access to different amounts of federal student loans. Using a regression discontinuity and administrative data from a state higher education system, we find that access to higher loan limits increases borrowing for at least 26 percent of borrowers. Despite this increase in borrowing, we find no evidence that eligibility for additional loans affects student GPA, persistence, or graduation.

Suggested Citation

  • Denning, Jeffrey T. & Jones, Todd R., 2019. "Maxed Out? The Effect of Larger Student Loan Limits on Borrowing and Education Outcomes," IZA Discussion Papers 12239, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp12239
    as

    Download full text from publisher

    File URL: http://ftp.iza.org/dp12239.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Stephen V. Cameron & James J. Heckman, 1998. "Life Cycle Schooling and Dynamic Selection Bias: Models and Evidence for Five Cohorts of American Males," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 262-333, April.
    2. Darolia, Rajeev, 2013. "Integrity versus access? The effect of federal financial aid availability on postsecondary enrollment," Journal of Public Economics, Elsevier, vol. 106(C), pages 101-114.
    3. Lance J. Lochner & Alexander Monge-Naranjo, 2011. "The Nature of Credit Constraints and Human Capital," American Economic Review, American Economic Association, vol. 101(6), pages 2487-2529, October.
    4. 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.
    5. Lance Lochner & Alexander Monge-Naranjo, 2012. "Credit Constraints in Education," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 225-256, July.
    6. Ralph Stinebrickner & Todd Stinebrickner, 2008. "The Effect of Credit Constraints on the College Drop-Out Decision: A Direct Approach Using a New Panel Study," American Economic Review, American Economic Association, vol. 98(5), pages 2163-2184, December.
    7. Michael F. Lovenheim, 2011. "The Effect of Liquid Housing Wealth on College Enrollment," Journal of Labor Economics, University of Chicago Press, vol. 29(4), pages 741-771.
    8. Jeffrey T. Denning & Benjamin M. Marx & Lesley J. Turner, 2019. "ProPelled: The Effects of Grants on Graduation, Earnings, and Welfare," American Economic Journal: Applied Economics, American Economic Association, vol. 11(3), pages 193-224, July.
    9. Philippe Belley & Lance Lochner, 2007. "The Changing Role of Family Income and Ability in Determining Educational Achievement," Journal of Human Capital, University of Chicago Press, vol. 1(1), pages 37-89.
    10. Rothstein, Jesse & Rouse, Cecilia Elena, 2011. "Constrained after college: Student loans and early-career occupational choices," Journal of Public Economics, Elsevier, vol. 95(1), pages 149-163.
    11. Jeffrey T. Denning, 2017. "College on the Cheap: Consequences of Community College Tuition Reductions," American Economic Journal: Economic Policy, American Economic Association, vol. 9(2), pages 155-188, May.
    12. Ben Ost & Weixiang Pan & Douglas Webber, 2018. "The Returns to College Persistence for Marginal Students: Regression Discontinuity Evidence from University Dismissal Policies," Journal of Labor Economics, University of Chicago Press, vol. 36(3), pages 779-805.
    13. Alex Solis, 2017. "Credit Access and College Enrollment," Journal of Political Economy, University of Chicago Press, vol. 125(2), pages 562-622.
    14. Benjamin W. Cowan, 2016. "Testing for Educational Credit Constraints Using Heterogeneity in Individual Time Preferences," Journal of Labor Economics, University of Chicago Press, vol. 34(2), pages 363-402.
    15. Adam Looney & Constantine Yannelis, 2015. "A Crisis in Student Loans? How Changes in the Characteristics of Borrowers and in the Institutions They Attended Contributed to Rising Loan Defaults," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 46(2 (Fall)), pages 1-89.
    16. Benjamin M. Marx & Lesley J. Turner, 2015. "Borrowing Trouble? Student Loans, the Cost of Borrowing, and Implications for the Effectiveness of Need-Based Grant Aid," NBER Working Papers 20850, National Bureau of Economic Research, Inc.
    17. Douglas Almond & Joseph J. Doyle, 2011. "After Midnight: A Regression Discontinuity Design in Length of Postpartum Hospital Stays," American Economic Journal: Economic Policy, American Economic Association, vol. 3(3), pages 1-34, August.
    18. Stephen V. Cameron & James J. Heckman, 1998. "Life Cycle Schooling and Dynamic Selection Bias: Models and Evidence for Five Cohorts," NBER Working Papers 6385, National Bureau of Economic Research, Inc.
    19. Alvaro Mezza & Daniel Ringo & Kamila Sommer & Shane Sherlund, 2016. "On the Effect of Student Loans on Access to Homeownership," ERES eres2016_159, European Real Estate Society (ERES).
    20. Judith Scott-Clayton, 2011. "On Money and Motivation: A Quasi-Experimental Analysis of Financial Incentives for College Achievement," Journal of Human Resources, University of Wisconsin Press, vol. 46(3), pages 614-646.
    21. Benjamin L. Castleman & Bridget Terry Long, 2016. "Looking beyond Enrollment: The Causal Effect of Need-Based Grants on College Access, Persistence, and Graduation," Journal of Labor Economics, University of Chicago Press, vol. 34(4), pages 1023-1073.
    22. Seth D. Zimmerman, 2014. "The Returns to College Admission for Academically Marginal Students," Journal of Labor Economics, University of Chicago Press, vol. 32(4), pages 711-754.
    23. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Britton, Jack & Gruber, Jonathan, 2020. "Do income contingent student loans reduce labor supply?," Economics of Education Review, Elsevier, vol. 79(C).
    2. Jones, Todd R. & Kreisman, Daniel & Rubenstein, Ross & Searcy, Cynthia & Bhatt, Rachana, 2020. "The Effects of Financial Aid Loss on Persistence and Graduation: A Multi-Dimensional Regression Discontinuity Approach," IZA Discussion Papers 13849, Institute of Labor Economics (IZA).
    3. Sandra E. Black & Jeffrey T. Denning & Lisa J. Dettling & Sarena Goodman & Lesley J. Turner, 2020. "Taking It to the Limit: Effects of Increased Student Loan Availability on Attainment, Earnings, and Financial Well-Being," NBER Working Papers 27658, National Bureau of Economic Research, Inc.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jeffrey T. Denning, 2019. "Born under a Lucky Star: Financial Aid, College Completion, Labor Supply, and Credit Constraints," Journal of Human Resources, University of Wisconsin Press, vol. 54(3), pages 760-784.
    2. George Bulman & Robert Fairlie & Sarena Goodman & Adam Isen, 2016. "Parental Resources and College Attendance: Evidence from Lottery Wins," NBER Working Papers 22679, National Bureau of Economic Research, Inc.
    3. Lance J. Lochner & Alexander Monge-Naranjo, 2011. "The Nature of Credit Constraints and Human Capital," American Economic Review, American Economic Association, vol. 101(6), pages 2487-2529, October.
    4. Steven J. Haider & Kathleen McGarry, 2018. "Postsecondary Schooling and Parental Resources: Evidence from the PSID and HRS," Education Finance and Policy, MIT Press, vol. 13(1), pages 72-96, Winter.
    5. Barr, Andrew, 2016. "Enlist or enroll: Credit constraints, college aid, and the military enlistment margin," Economics of Education Review, Elsevier, vol. 51(C), pages 61-78.
    6. Delavande, Adeline & Zafar, Basit, 2014. "University choice: the role of expected earnings, non-pecuniary outcomes and financial constraints," ISER Working Paper Series 2014-38, Institute for Social and Economic Research.
    7. Lance Lochner & Alexander Monge-Naranjo, 2014. "Student Loans and Repayment: Theory, Evidence and Policy," Working Papers 2014-40, Federal Reserve Bank of St. Louis.
    8. Benjamin W. Cowan, 2016. "Testing for Educational Credit Constraints Using Heterogeneity in Individual Time Preferences," Journal of Labor Economics, University of Chicago Press, vol. 34(2), pages 363-402.
    9. Christian Belzil & Arnaud Maurel & Modibo Sidibé, 2017. "Estimating the Value of Higher Education Financial Aid: Evidence from a Field Experiment," NBER Working Papers 23641, National Bureau of Economic Research, Inc.
    10. Elena Mattana & Juanna Joensen, 2016. "Student Aid, Academic Achievement, and Labor Market Behavior," 2016 Meeting Papers 1102, Society for Economic Dynamics.
    11. Jeffrey T. Denning & Benjamin M. Marx & Lesley J. Turner, 2019. "ProPelled: The Effects of Grants on Graduation, Earnings, and Welfare," American Economic Journal: Applied Economics, American Economic Association, vol. 11(3), pages 193-224, July.
    12. Elena Mattana & Juanna Joensen, 2014. "Student Aid, Academic Achievement, and Labor Market Behavior: Grants or Loans?," 2014 Meeting Papers 707, Society for Economic Dynamics.
    13. Alfonso, Mariana, 2011. "Credit Constraints and the Demand for Higher Education in Latin America," IDB Publications (Working Papers) 2526, Inter-American Development Bank.
    14. Philippe Belley & Lance Lochner, 2007. "The Changing Role of Family Income and Ability in Determining Educational Achievement," Journal of Human Capital, University of Chicago Press, vol. 1(1), pages 37-89.
    15. Elizabeth M. Caucutt & Lance Lochner, 2020. "Early and Late Human Capital Investments, Borrowing Constraints, and the Family," Journal of Political Economy, University of Chicago Press, vol. 128(3), pages 1065-1147.
    16. Christoph Winter, 2014. "Accounting for the Changing Role of Family Income in Determining College Entry," Scandinavian Journal of Economics, Wiley Blackwell, vol. 116(4), pages 909-963, October.
    17. Philippe Belley & Marc Frenette & Lance Lochner, 2011. "Post-Secondary Attendance by Parental Income in the U.S. and Canada: What Role for Financial Aid Policy?," NBER Working Papers 17218, National Bureau of Economic Research, Inc.
    18. Sunha Myong & Jungho Lee, 2019. "Self-financing, Parental Transfer, and College Education," 2019 Meeting Papers 106, Society for Economic Dynamics.
    19. Mariana Alfonso, 2009. "Credit Constraints and the Demand for Higher Education in Latin America," IDB Publications (Working Papers) 9314, Inter-American Development Bank.
    20. Matthew T. Johnson, 2013. "Borrowing Constraints, College Enrollment, and Delayed Entry," Journal of Labor Economics, University of Chicago Press, vol. 31(4), pages 669-725.

    More about this item

    Keywords

    student loans;

    JEL classification:

    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp12239. 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: (Holger Hinte). General contact details of provider: http://www.iza.org .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.