Loans for Educational Opportunity: Making Borrowing Pay for Today's Students

Dynarski, Susan; Kreisman, Daniel

doi:10.17848/9780880994873.ch12

Cited by 32 publications

(41 citation statements)

References 5 publications

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“…If, instead, a shift toward riskier borrowers with weaker labor market prospects is driving rising default rates, then it may be less surprising that student loan borrowers are less likely to be homeowners or to be constrained in their occupational choices. In fact, rising default rates among such borrowers could be overshadowing relatively beneficial investments in higher education, which may be less worrisome or even desirable (Akers and Chingos (2014), Avery and Turner (2012), Dynarksi and Kreisman (2013), Sun and Yannelis (2014).) Indeed, for most borrowers (and the majority of the student loan portfolio) the education investments financed with their loans are associated with favorable economic outcomes, and borrowers are able to repay their debt even during recessionary periods.…”

mentioning

confidence: 99%

A Crisis in Student Loans?: How Changes in the Characteristics of Borrowers and in the Institutions They Attended Contributed to Rising Loan Defaults

Looney¹,

Yannelis²

2015

Brookings Papers on Economic Activity

194

161

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*This paper examines the rise in student loan delinquency and default drawing on a unique set of administrative data on federal student borrowing, matched to earnings records from de-identified tax records. Most of the increase in default is associated with the rise in the number of borrowers at for-profit schools and, to a lesser extent, 2-year institutions and certain other non-selective institutions, whose students historically composed only a small share of borrowers. These non-traditional borrowers were drawn from lower income families, attended institutions with relatively weak educational outcomes, and experienced poor labor market outcomes after leaving school. In contrast, default rates among borrowers attending most 4-year public and non-profit private institutions and graduate borrowers-borrowers who represent the vast majority of the federal loan portfolio-have remained low, despite the severe recession and their relatively high loan balances. Their higher earnings, low rates of unemployment, and greater family resources appear to have enabled them to avoid adverse loan outcomes even during times of hardship. Decomposition analysis indicates that changes in characteristics of borrowers and the institutions they attended are associated with much of the doubling in default rates between 2000 and 2011. Changes in the type of schools attended, debt burdens, and labor market outcomes of non-traditional borrowers at for-profit and 2-year colleges explain the largest share.JEL Classification: D14, E24, I23, G28, H52, H81

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mentioning

confidence: 99%

A Crisis in Student Loans?: How Changes in the Characteristics of Borrowers and in the Institutions They Attended Contributed to Rising Loan Defaults

Looney¹,

Yannelis²

2015

Brookings Papers on Economic Activity

194

161

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“…We discuss IBR (and other alternatives to debt) further below in the context of risk-sharing. have pointed out the moral hazard created by this feature (e.g., Dynarski & Kreisman 2013, Brooks 2016. There is also potential for adverse selection to jeopardize the sustainability of the loan program with IBR, as low-income borrowers might embrace this feature, driving up the cost to the government, whereas higher-income borrowers might seek lower-cost traditional loans from private lenders who do not provide IBR.…”

Section: Incentive and Funding Issues In Student Lendingmentioning

confidence: 99%

“…A more streamlined alternative, outlined by Dynarski & Kreisman (2013), would eliminate private-sector intermediaries altogether, integrating student loan payments with other payroll withdrawals such as Social Security and Medicare taxes. This arrangement would likely reduce the administrative costs of collecting payments and verifying income flows in the case of IBR programs.…”

Section: Alternative Student Loan Policies In Practicementioning

confidence: 99%

Education Financing and Student Lending

Amromin¹,

Eberly²

2016

Annu. Rev. Financ. Econ.

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As the cost of education rises and student debt reaches new highs, more research has focused on financing the acquisition of human capital. Most research has had a positive focus, examining the effect of debt on student choices and outcomes. However, because education financing involves many public policy choices, normative questions have become more prominent. We discuss the trade-offs involved in these choices and propose simple models to help shape these questions. We first develop an overlapping generations framework of student debt to examine the macroeconomic impact of shifting from a parent-funded to a student debt-based financing system. We then consider a framework that includes the supply-side response to different funding regimes; that is, how do enrollment and tuition decisions of schools respond to changes in education financing?We show that shifting from parent-based funding to a student loan program can lower aggregate savings, although welfare still improves if education has a higher return than physical capital investment. A public student loan program also tends to promote enrollment at the cost of higher tuition at for-profit schools and deteriorating loan performance, paid for by taxpayers. Alternative contract designs, with school participation in the lending program, tend to ameliorate these issues. 7.1

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“…In the USA, analyses of student debt have included guidelines ranging from 5 to 15 percent of gross income as acceptable burdens, but the 8 percent rule has come to be accepted as the consensus standard (Baum and Schwartz, 2006). However, it has also been recognised that, the higher the earnings are, the higher the proportion that can be devoted to student loan repayment is (Dynarsky and Kreisman, 2013).…”

Section: Introductionmentioning

confidence: 99%

Estimating Taxpayer Subsidies and Individual Repayment Burdens of a Student Loan Program in Spain

Callado-Muñoz¹,

Rey²,

Utrero-González³

2017

HPE-RPE

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We study the program Préstamos Renta Universidad that provided loans to Master's students in Spain between 2007 and 2010. We estimate predicted income functions and calculate individual repayment burdens and government cost using unconditional quantile regression analysis. We exploit the changing conditions of the successive calls to illustrate three important lessons for the design of student loan schemes: fixed monthly repayments exert an excessive burden to graduates at the lower end of the income distribution; general interest rate subsidies are costly to the taxpayer and unfairly distributed; while the deferment of payments due in case of hardship protects low earners, general grace periods are costly and inequitable.

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Loans for Educational Opportunity: Making Borrowing Pay for Today's Students

Cited by 32 publications

References 5 publications

A Crisis in Student Loans?: How Changes in the Characteristics of Borrowers and in the Institutions They Attended Contributed to Rising Loan Defaults

A Crisis in Student Loans?: How Changes in the Characteristics of Borrowers and in the Institutions They Attended Contributed to Rising Loan Defaults

Education Financing and Student Lending

Estimating Taxpayer Subsidies and Individual Repayment Burdens of a Student Loan Program in Spain

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