TY  - JOUR
AU  - Willen,Paul
AU  - Hendel,Igal
AU  - Shapiro,Joel
TI  - Educational Opportunity and Income Inequality
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10879
PY  - 2004
Y2  - November 2004
UR  - http://www.nber.org/papers/w10879
L1  - http://www.nber.org/papers/w10879.pdf
N1  - Author contact info:
Paul S. Willen
Federal Reserve Bank of Boston
600 Atlantic Avenue
Boston, MA  02210-2204
Tel: 617/973-3149
Fax: 617/973-2123
E-Mail: willen968@gmail.com

Igal Hendel
Department of Economics
Northwestern University
2001 Sheridan Road
Evanston, IL 60208
Tel: 847/491-8226
Fax: 847/491-7001
E-Mail: igal@northwestern.edu

Joel Shapiro
Saïd Business School, U. of Oxford
Park End Street
Oxford    OX1 1HP
United Kingdom
E-Mail: Joel.Shapiro@sbs.ox.ac.uk
AB  - Affordable higher education is, and has been, a key element of social policy in the United States with broad bipartisan support. Financial aid has substantially increased the number of people who complete university - generally thought to be a good thing. We show, however, that making education more affordable can increase income inequality. The mechanism that drives our results is a combination of credit constraints and the `signaling' role of education first explored by Spence (1973). When borrowing for education is difficult, lack of a college education could mean that one is either of low ability or of high ability but with low financial resources. When government programs make borrowing or lower tuition more affordable, high-ability persons become educated and leave the uneducated pool, driving down the wage for unskilled workers and raising the skill premium.
ER  -