Becker Friedman Institute

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The Federal Student Loan Program: Quantitative Implications for College Enrollment and Default Rates

I quantify the effects of alternative student loan policies on college enrollment, borrowing behavior, and default rates in a heterogeneous model of life-cycle earnings and human capital accumulation. I find that the combination of learning ability and initial stock of human capital drives the decision to enroll in college, while parental wealth has minimal effects on enrollment. Repayment flexibility increases enrollment significantly, whereas relaxation of eligibility requirements has little effect on enrollment or default rates. The former policy benefits low-income households, while the latter has negligible effects on these households

Authors: 
Felicia Ionescu, Board of Governors of the Federal Reserve System
Publication Date: 
January, 2009
HCEO Working Groups: 
Publication Type: 
Journal: 
Review of Economic Dynamics
Volume: 
12
Issue Number: 
1
Pages: 
205-231