Student loans in a tiebout model of higher education

Robert Schwager

No 137, University of Göttingen Working Papers in Economics from University of Goettingen, Department of Economics

Abstract: A model is presented where universities competitively supply education to mobile students. Students are subject to a liquidity constraint so that tuition must be paid out of pre-university income. It is shown that student loans provided by home jurisdictions will ensure an efficient quality of higher education if loans do not contain any subsidy. If there is income-related debt relief, however, the equilibrium quality of education is inefficiently low. This is because students reduce their expected future income by attending a university offering low quality, and thereby reduce the amount of debt to be repaid.

Keywords: education; university; mobility; liquidity constraint; debt relief (search for similar items in EconPapers)
JEL-codes: H75 I23 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cegedp:137

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