Student Loans, Marginal Costs, and Markups: Estimates From the PLUS Program
45 Pages Posted: 28 Jul 2016 Last revised: 8 Feb 2018
Date Written: February 7, 2018
We estimate small marginal costs and large markups at private colleges in the United States, and discuss implications for the design of financial aid. For identification, we exploit a tightening of credit standards in the PLUS loan program, which decreased enrollment, revenues, and expenditures at private colleges with low-income students. We estimate that markups represented more than half of charges for students disqualified by the change. Markups were higher at for-profit schools, and in states with fewer public schools and lower education spending. Our results complement prior evidence on the Bennett Hypothesis, and contrast prior estimates of small markups.
Keywords: Student loans, PLUS loans, Bennett Hypothesis, Credit histories, Higher education, Subsidy incidence
JEL Classification: I22, I23, H22, D14, G28
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