NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Borrowing Constraints, College Aid, and Intergenerational Mobility

Eric A. Hanushek, Charles Ka Yui Leung, Kuzey Yilmaz

NBER Working Paper No. 10711
Issued in August 2004
NBER Program(s):   LS   PE   CH

The current level and form of subsidization of college education is often rationalized by appeal to capital constraints on individuals. Because borrowing against human capital is difficult, capital constraints can lead to nonoptimal outcomes unless government intervenes. We develop a simple dynamic general equilibrium model of the economy that permits us to explore the impact of alternative ways of subsidizing higher education. The key features of this model include endogenously determined bequests from parents that can be used to finance schooling, uncertainty in college completion related to differences in ability, and wage determination based upon the amount of schooling in the economy. Because policies toward college lead to large changes in schooling, it is very important to consider the general equilibrium effects on wages. Within this structure, we analyze tuition subsidies such as exist in most public colleges, alternative forms of need-based aid, income contingent loans, and merit-based aid. Each of these policies tends both to improve the efficiency of the economy while yielding more intergenerational mobility and greater income equality. But, the various policies have quite different implications for societal welfare, and the underlying subsidy patterns vary widely.

download in pdf format
   (1538 K)

email paper

This paper is available as PDF (1538 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w10711

Published: Eric A. Hanushek & Charles Ka Yui Leung & Kuzey Yilmaz, 2014. "Borrowing Constraints, College Aid, and Intergenerational Mobility," Journal of Human Capital, University of Chicago Press, vol. 8(1), pages 1 - 41. citation courtesy of

Users who downloaded this paper also downloaded these:
Avery and Hoxby Do and Should Financial Aid Packages Affect Students' College Choices?
Lee and Solon w12007 Trends in Intergenerational Income Mobility
Dynarski w7756 Hope for Whom? Financial Aid for the Middle Class and Its Impact on College Attendance
Belley and Lochner w13527 The Changing Role of Family Income and Ability in Determining Educational Achievement
Owen and Weil w6070 Intergenerational Earnings Mobility, Inequality, and Growth
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us