The Nature of Credit Constraints and Human Capital

Lance Lochner and Alexander Monge-Naranjo

No 13912, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies the nature and impact of credit constraints in the market for human capital. We derive endogenous constraints from the design of government student loan programs and from the limited repayment incentives in private lending markets. These constraints imply cross-sectional patterns for schooling, ability, and family income that are consistent with U.S. data. This contrasts with the standard exogenous constraint model, which predicts a counterfactual negative ability -- schooling relationship for low-income youth. We show that the rising empirical importance of familial wealth and income in determining college attendance (Belley and Lochner 2007) is consistent with increasingly binding credit constraints in the face of rising tuition costs and returns to schooling. Our framework also explains the recent increase in private credit for college as a market response to the rising returns to school.

JEL-codes: H81 I22 I28 (search for similar items in EconPapers)
Date: 2008-04
New Economics Papers: this item is included in nep-dge, nep-edu and nep-hrm
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Published as Lance J. Lochner & Alexander Monge-Naranjo, 2011. "The Nature of Credit Constraints and Human Capital," American Economic Review, American Economic Association, vol. 101(6), pages 2487-2529, October.

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Related works:
Journal Article: The Nature of Credit Constraints and Human Capital (2011)
Working Paper: The Nature of Credit Constraints and Human Capital (2010)
Working Paper: The Nature of Credit Constraints and Human Capital (2009)
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