1. Parental Support, Savings and Student Loan Repayment
- Author:
- Lance Lochner, Todd Stinebrickner, and Utku Suleymanoglu
- Publication Date:
- 07-2018
- Content Type:
- Working Paper
- Institution:
- Centre for Human Capital and Productivity (CHCP), Western University
- Abstract:
- Using unique survey and administrative data from the Canada Student Loans Program, we document that parental support and personal savings substantially lower student loan repayment problems. We develop a theoretical model for studying student borrowing and repayment in the presence of risky labor market outcomes, moral hazard, and costly earnings verification. This framework demonstrates that non-monetary costs of applying for income-based repayment assistance are critical to understanding why resources other than earnings lead to greater repayment. We further show that eliminating these non-monetary costs may be inefficient and lead to undesirable redistribution. Empirically, we demonstrate that expanding Canada’s income-based Repayment Assistance Plan to automatically cover all borrowers would likely reduce program revenue by nearly one-half over early years of repayment. Finally, we show how student loan programs can be more efficiently designed to address heterogeneity in parental transfers in the presence of non-monetary earnings verification costs and moral hazard.
- Topic:
- Debt, Economics, Human Capital, Higher Education, Productivity, and Student Loans
- Political Geography:
- United States and Canada