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Discussion Paper
Federal Student Loan Servicing Accountability and Incentives in Contracts
Student loan servicers play a critical and underappreciated role in federal student oan programs. The federal government contracts out to servicers an array of many of the most critical functions related to student loan repayment, including account management, payment processing, and the provision of information about payment plans and solutions for distressed borrowers. In fact, most borrowers’ interactions with federal student loan repayment are almost exclusively with their servicer. We aim to improve upon the scarce research literature about federal student loan servicers by exploring ...
Working Paper
Old, sick, alone, and poor: a welfare analysis of old-age social insurance programs
Poor health, large acute and long-term care medical expenses, and spousal death are significant drivers of impoverishment among retirees. We document these facts and build a rich, overlapping generations model that reproduces them. We use the model to assess the incentive and welfare effects of Social Security and means-tested social insurance programs such as Medicaid and food stamp programs, for the aged. We find that U.S. means-tested social insurance programs for retirees provide significant welfare benefits for all newborn. Moreover, when means-tested social insurance benefits are of the ...
Report
Assessing the Relative Progressivity of the Biden Administration’s Federal Student Loan Forgiveness Proposal
We quantify the total stock of balances eligible for the Biden Administration’s student loan forgiveness policy announced and examine which groups benefit most. Up to $442 billion in loans are eligible. Those benefiting most are younger, have lower credit scores, and live in lower- and middle-income neighborhoods. We also find that Black and Hispanic borrowers disproportionately benefit from the proposal. We then compare the distribution of beneficiaries for the announced policy to several alternative hypothetical forgiveness proposals and three existing tax credits. The additional ...
Working Paper
WHERE DO STUDENTS GO WHEN FOR-PROFIT COLLEGES LOSE FEDERAL AID?
Recent federal investigations and new regulations have resulted in restrictions on for-profit institutions? access to federal student aid. We examine the enrollment effects of similar restrictions imposed on over 1,200 for-profit colleges in the 1990s. Using variation in regulations linked to student loan default rates, we estimate the impact of the loss of federal aid on the enrollment of Pell Grant recipients in sanctioned institutions and their local competitors. Enrollment in a sanctioned for-profit college declines by 53 percent in the five years following a sanction. For-profit ...
Discussion Paper
Student Loan Repayment and College Accountability
Student loan debt and defaults have been steadily rising, igniting public worry about the associated public and private risks. This has led to controversial attempts to curb defaults by holding colleges, particularly those in the for-profit sector, increasingly accountable for the student loan repayment behavior of their students. These efforts attempt to protect taxpayers against the misuse of public money used to encourage college enrollment and to safeguard students against potentially risky human capital investments. Recent policy proposals penalize colleges for students? poor repayment ...
Working Paper
The Multiplier Effect of Education Expenditure
This paper examines the short-run effects of federal education expenditures on local income. We exploit city-level variation in exposure to national changes in the $30-billion Federal Pell Grant Program, which is the largest program to help low-income students attend college in the U.S., to calculate fiscal multipliers of education expenditures. An increase in Pell grants by 1 percent of a city's income raises local income by 2.4 percent over the next two years. This multiplier effect is larger than estimates for military spending (1.5 on average). Multipliers are higher when grants are ...
Report
Tuition, Debt, and Human Capital
This paper investigates the effects of college tuition on student debt and human capital accumulation. We exploit data from a random sample of undergraduate students in the United States and implement a research design that instruments for tuition with relatively large changes to the tuition of students who enrolled at the same school in different cohorts. We find that $10,000 in higher tuition causally reduces the probability of graduating with a graduate degree by 6.2 percentage points and increases student debt by $2,961. Higher tuition also reduces the probability of obtaining an ...
Working Paper
The Consequences of Student Loan Credit Expansions: Evidence from Three Decades of Default Cycles
This paper studies the link between credit availability and student loan repayment using administrative federal student loan data. We demonstrate that expansions and contractions in federal student loan credit to institutions with high default rates explain most of the time series variation in student loan defaults between 1980 and 2010. Expansions in loan eligibility between 1976 and 1988 led to the entry of new, high-risk institutions, and default rates exceeding 30 percent in the late 1980s. Credit access was subsequently tightened through strict institutional and student accountability ...
Working Paper
An Experiment on Information Use in College Student Loan Decisions
There is ample concern that college students are making ill-informed student loan decisions with potentially negative consequences to themselves and the broader economy. This paper reports the results of a randomized field experiment in which college students are provided salient information about their borrowing choices. The setting is a large flagship public university in the Midwest, and the sample includes all nongraduating students who previously borrowed student loan money (~10,000 students). Half of the students received individually tailored letters with simplified information about ...
Working Paper
A Day Late and a Dollar Short : Liquidity and Household Formation among Student Borrowers
The federal government encourages human capital investment through lending and grant programs, but resources from these programs may also finance non-education activities for students whose liquidity is otherwise restricted. This paper explores this possibility, using administrative data for the universe of federal student loan borrowers linked to tax records. We examine the effects of a sharp discontinuity in program limits?generated by the timing of a student borrower?s 24th birthday?on household formation early in the lifecycle. After demonstrating that this discontinuity induces a jump in ...