Parental Support, Savings and Student Loan Repayment / Lance Lochner, Todd Stinebrickner, Utku Suleymanoglu.

Format:

Book

Author/Creator:

Lochner, Lance.

Contributor:

National Bureau of Economic Research.

Stinebrickner, Todd.

Suleymanoglu, Utku.

Series:

Working Paper Series (National Bureau of Economic Research) no. w24863.

NBER working paper series no. w24863

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2018.

Summary:

Using unique survey and administrative data from the Canada Student Loans Program, we document that parental support and personal savings substantially lower student loan repayment problems. We develop a theoretical model for studying student borrowing and repayment in the presence of risky labor market outcomes, moral hazard, and costly earnings verification. This framework demonstrates that non-monetary costs of applying for income-based repayment assistance are critical to understanding why resources other than earnings lead to greater repayment. We further show that eliminating these non-monetary costs may be inefficient and lead to undesirable redistribution. Empirically, we demonstrate that expanding Canada's income-based Repayment Assistance Plan to automatically cover all borrowers would likely reduce program revenue by nearly one-half over early years of repayment. Finally, we show how student loan programs can be more efficiently designed to address heterogeneity in parental transfers in the presence of non-monetary earnings verification costs and moral hazard.

Notes:

Print version record

July 2018.