American Economic Review Vol. 101 No. 6 2011

The Nature of Credit Constraints and Human Capital

Lance Lochner¹; Alexander Monge-Naranjo²

¹ Department of Economics, University of Western Ontario, London, Ontario N6A 5C2, Canada, and National Bureau of Economic Research. · ² Department of Economics, Pennsylvania State University, 502 Kern Graduate Building, University Park, PA, 16802-3306.

Abstract

We develop a human capital model with borrowing constraints explicitly derived from government student loan (GSL) programs and private lending under limited commitment. The model helps explain the persistent strong positive correlation between ability and schooling in the United States, as well as the rising importance of family income for college attendance. It also explains the increasing share of undergraduates borrowing the GSL maximum and the rise in student borrowing from private lenders. Our framework offers new insights regarding the interaction of government and private lending, as well as the responsiveness of private credit to economic and policy changes.

DOI

10.1257/aer.101.6.2487

Volume

101

Issue

6

Pages

2487-2529

Language

en

Sources

openalex bibtex:phds-export.bib crossref

Cite

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