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Borrowing Constraints, College Aid, and Intergenerational Mobility

  • Eric Hanushek

    (Stanford University)

  • Charles Ka Yui Leung

    (City University of Hong Kong)

  • Kuzey Yilmaz

    (University of Rochester)

This paper provides a consistent comparison of general tuition subsidies, need-based student aid, merit-based student aid, and income-contingent loans (ICL). Each of these policies is analyzed through a dynamic general equilibrium model in which individuals differ in family wealth and opportunities of completing college. The overlapping-generation structure of the model permits evaluation of different aid schemes in their implications on the aggregate outcomes, income distribution, and intergenerational mobility. Compared to current US tuition and loan policies, the ICL and need-based policies are most effective in promoting aggregate efficiency and income equality, while merit-based policies are least effective.

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File URL: http://rcer.econ.rochester.edu/RCERPAPERS/rcer_581.pdf
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Paper provided by University of Rochester - Center for Economic Research (RCER) in its series RCER Working Papers with number 581.

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Length: 24 pages
Date of creation: Mar 2014
Date of revision:
Handle: RePEc:roc:rocher:581
Contact details of provider: Postal: University of Rochester, Center for Economic Research, Department of Economics, Harkness 231 Rochester, New York 14627 U.S.A.

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