Parental Support, Savings and Student Loan Repayment

Lance Lochner, Todd Stinebrickner and Utku Suleymanoglu ()
Additional contact information
Utku Suleymanoglu: University of Michigan

No 2018-054, Working Papers from Human Capital and Economic Opportunity Working Group

Abstract: 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.

Keywords: student loans; moral hazard; college; family investments (search for similar items in EconPapers)
JEL-codes: D81 E24 H52 (search for similar items in EconPapers)
Date: 2018-08
New Economics Papers: this item is included in nep-mac
Note: M
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://humcap.uchicago.edu/RePEc/hka/wpaper/Lochne ... ngs-student-loan.pdf First version, July 4, 2018 (application/pdf)

Related works:
Journal Article: Parental Support, Savings, and Student Loan Repayment (2021)
Working Paper: Parental Support, Savings and Student Loan Repayment (2018)
Working Paper: Parental Support, Savings and Student Loan Repayment (2018)
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