Credit Scores and College Investment

Felicia Ionescu () and Nicole Simpson
Additional contact information
Felicia Ionescu: Department of Economics, Colgate University, http://www.colgate.edu/econ/

No 2010-07, Working Papers from Department of Economics, Colgate University

Abstract: The private market of student loans has become an important source of college financing in the U.S. Unlike government student loans, the terms on private student loans (i.e., credit limits and interest rates) are based on credit scores We quantify the effects of credit scores on college investment in a heterogeneous life-cycle economy that exhibits a government and private market for student loans. We find that students with higher credit scores invest in more college education. Furthermore, we find that the relationship between credit scores and college investment has important policy implications. For example, when government borrowing limits are relaxed, college investment increases but so does the riskiness of the pool of borrowers, leading to higher default rates in the private market. If private creditors react to the government policy (by adjusting loan terms to minimize default risk), college investment is offset, with poor students experiencing the largest reductions. The effects of credit scores on college investment are more pronounced when taking into account the recent drop in financial wealth for U.S. households.

Keywords: college investment; credit scores; student loans (search for similar items in EconPapers)
JEL-codes: E21 E24 I22 I28 (search for similar items in EconPapers)
Date: 2010-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
https://digitalcollections.colgate.edu/islandora/object/islandora%253A4692 (application/pdf)

Related works:
Working Paper: Credit Scores and College Investment (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cgt:wpaper:2010-07

Access Statistics for this paper

More papers in Working Papers from Department of Economics, Colgate University Contact information at EDIRC.
Bibliographic data for series maintained by Chad Sparber ().