TY  - JOUR
AU  - Lochner,Lance J.
AU  - Monge-Naranjo,Alexander
TI  - The Nature of Credit Constraints and Human Capital
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13912
PY  - 2008
Y2  - April 2008
UR  - http://www.nber.org/papers/w13912
L1  - http://www.nber.org/papers/w13912.pdf
N1  - Author contact info:
Lance Lochner
Department of Economics, Faculty of Social Science
University of Western Ontario
1151 Richmond Street, North
London, ON  N6A 5C2
CANADA
Tel: 519/661-2111 ext. 85281
Fax: 519/661-3666
E-Mail: llochner@uwo.ca

Alexander Monge-Naranjo
Department of Economics
Weinberg College of Arts and Sciences
Northwestern University
Andersen Hall 3247, 2003 N. Sheridan Rd.
Evanston, Illinois 60202
Tel: 847/491-8234
Fax: 847/491-7001
E-Mail: alexmonge@gmail.com
AB  - This paper studies the nature and impact of credit constraints in the market for human capital. We derive endogenous constraints from the design of government student loan programs and from the limited repayment incentives in private lending markets. These constraints imply cross-sectional patterns for schooling, ability, and family income that are consistent with U.S. data. This contrasts with the standard exogenous constraint model, which predicts a counterfactual negative ability -- schooling relationship for low-income youth. We show that the rising empirical importance of familial wealth and income in determining college attendance (Belley and Lochner  2007) is consistent with increasingly binding credit constraints in the face of rising tuition costs and returns to schooling. Our framework also explains the recent increase in private credit for college as a market response to the rising returns to school.
ER  -