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Borrowing Constraints, College Enrollment, and Delayed Entry

In this paper I propose and estimate a dynamic model of education, borrowing, and work decisions of high school graduates. I examine the effect of relaxing borrowing constraints on educational attainment by simulating increases in the amount students are permitted to borrow from government sponsored loan programs. My results indicate that borrowing constraints have a small impact on college completion: the removal of education related borrowing constraints increases degree completion by 1.1 percentage points. Tuition subsidies have much larger impacts. I find that increased subsidies for middle income households are the most cost effective method to raise degree completion.

Authors: 
Matthew Johnson, Mathematica Policy Research
Publication Date: 
September, 2012
HCEO Working Groups: 
Publication Status: 
Document Number: 
2011-006
File Description: 
First version, September 21, 2010