The Incidence of Student Loan Subsidies: Evidence from the PLUS Program

Mahyar Kargar and William Mann

The Review of Financial Studies, 2023, vol. 36, issue 4, 1621-1666

Abstract: How much do students benefit from student loan subsidies? We investigate this question, exploiting a natural experiment: a demand shock due to the 2011 tightening of credit standards in the PLUS program. We first establish that the Bennett hypothesis is best explained by colleges charging large markups over their marginal costs, rather than by advantageous selection. Then we use our results to estimate that students plausibly capture less than 60 cents of each dollar of resources expended on loan subsidies. We discuss alternative approaches that would more directly benefit students.

JEL-codes: G28 G5 H22 I22 I23 (search for similar items in EconPapers)
Date: 2023
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