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A Theory of Inefficient College Entry and Excessive Student Debt

34 Pages Posted: 24 Mar 2012 Last revised: 9 Nov 2016

Viktar Fedaseyeu

Bocconi University - Department of Finance; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research

Vitaliy Strohush

Elon University

Date Written: November 5, 2016

Abstract

When workers are myopic and the amount of financing provided by the government is sufficiently large, some workers acquire education even if they are better off without it. We show that government-provided loans generate a propagation mechanism that exacerbates inefficient college entry. Further, the extent of this inefficiency depends on the speed at which loans are provided, and not just on their amount. The extent of inefficient college entry also depends on the distribution of myopic workers in the population, and inefficiencies can arise even if not all workers are myopic.

Keywords: Student loans, inefficient college entry, excessive student debt, education

JEL Classification: I22, I26, I28

Suggested Citation

Fedaseyeu, Viktar and Strohush, Vitaliy, A Theory of Inefficient College Entry and Excessive Student Debt (November 5, 2016). Available at SSRN: https://ssrn.com/abstract=2026990 or http://dx.doi.org/10.2139/ssrn.2026990

Viktar Fedaseyeu (Contact Author)

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy
+390258365283 (Phone)
+390258365283 (Fax)

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

Vitaliy Strohush

Elon University ( email )

Elon, NC 27244
United States

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