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Credit Constraints in Education

We review studies of the impact of credit constraints on the accumulation of human capital. Evidence suggests that credit constraints have recently become important for schooling and other aspects of households' behavior. We highlight the importance of early childhood investments, since their response largely determines the impact of credit constraints on the overall lifetime acquisition of human capital. We also review the intergenerational literature and examine the macroeconomic impacts of credit constraints on social mobility and the income distribution. A common limitation across all areas of the human capital literature is the impo- sition of ad hoc constraints on credit. We propose a more careful treatment of the structure of government student loan programs and the incentive problems underlying private credit. We show that endogenizing constraints on credit for human capital helps explain observed borrowing, schooling, and default patterns and o®ers new in- sights about the design of government policy.

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Paper provided by University of Western Ontario, Centre for Human Capital and Productivity (CHCP) in its series University of Western Ontario, Centre for Human Capital and Productivity (CHCP) Working Papers with number 20121.

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Date of creation: 2012
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Handle: RePEc:uwo:hcuwoc:20121
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Centre for Human Capital and Productivity (CHCP), Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2

Phone: 519-661-2111 Ext.85244
Web page: http://economics.uwo.ca/research/research_papers/chcp_workingpapers.html

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