TY - JOUR
T1 - College education and income contingent loans in equilibrium
AU - Matsuda, Kazushige
AU - Mazur, Karol
N1 - Funding Information:
We thank the editor and anonymous referee for their valuable suggestions. Our further thanks for helpful discussions are due to Arpad Abraham, Kim-Sau Chung, Pawel Doligalski, Johannes Fleck, Dirk Krueger, Hamish Low, Ramon Marimon, Muhammad Meki, Satoshi Tanaka, and audiences at many places where this paper was presented. This work was supported by JSPS KAKENHI grant number JP20K13477. All errors are our own.
Funding Information:
☆ We thank the editor and anonymous referee for their valuable suggestions. Our further thanks for helpful discussions are due to Arpad Abraham, Kim-Sau Chung, Pawel Doligalski, Johannes Fleck, Dirk Krueger, Hamish Low, Ramon Marimon, Muhammad Meki, Satoshi Tanaka, and audiences at many places where this paper was presented. This work was supported by JSPS KAKENHI grant number JP20K13477. All errors are our own.
Publisher Copyright:
© 2022 Elsevier B.V.
PY - 2022/11
Y1 - 2022/11
N2 - In 2009 the US government introduced a major income-contingent loans (ICLs) program for financing higher education. We investigate its welfare implications in the presence of income shocks, and endogenous dropout risk and college enrollment. While ICLs provide valuable income insurance and thereby increase college enrollment by risk averse agents, they may also lead to adverse selection of individuals with lower ability and generate a moral hazard cost of lowering educational effort and labor hours. We evaluate this insurance-incentives trade-off in a calibrated heterogeneous agent model. We show that ICLs increase welfare and that the social costs of adverse selection and moral hazard are mild.
AB - In 2009 the US government introduced a major income-contingent loans (ICLs) program for financing higher education. We investigate its welfare implications in the presence of income shocks, and endogenous dropout risk and college enrollment. While ICLs provide valuable income insurance and thereby increase college enrollment by risk averse agents, they may also lead to adverse selection of individuals with lower ability and generate a moral hazard cost of lowering educational effort and labor hours. We evaluate this insurance-incentives trade-off in a calibrated heterogeneous agent model. We show that ICLs increase welfare and that the social costs of adverse selection and moral hazard are mild.
KW - Endogenous skill premium
KW - Human capital
KW - Income driven repayments
UR - http://www.scopus.com/inward/record.url?scp=85138145224&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85138145224&partnerID=8YFLogxK
U2 - 10.1016/j.jmoneco.2022.08.005
DO - 10.1016/j.jmoneco.2022.08.005
M3 - Article
AN - SCOPUS:85138145224
SN - 0304-3932
VL - 132
SP - 100
EP - 117
JO - Carnegie-Rochester Confer. Series on Public Policy
JF - Carnegie-Rochester Confer. Series on Public Policy
ER -