The incidence of student loan subsidies: Evidence from the PLUS program

66 Pages Posted: 28 Jul 2016 Last revised: 14 Feb 2022

See all articles by Mahyar Kargar

Mahyar Kargar

University of Illinois at Urbana-Champaign - Department of Finance

William Mann

Emory University - Department of Finance

Date Written: February 7, 2018

Abstract

How much do students benefit from student loan subsidies? We investigate this question,
exploiting a natural experiment: a demand shock due to the tightening of credit
standards in the PLUS program in 2011. We first establish that the Bennett Hypothesis
is best explained by colleges charging large markups over their marginal costs, rather
than by advantageous selection. Then we use our results to estimate that students plausibly
capture less than 60 cents of each dollar of resources expended on loan subsidies.
We discuss alternative approaches that would more directly benefit students.

Keywords: Student loans, PLUS loans, Bennett Hypothesis, Credit histories, Higher education, Subsidy incidence

JEL Classification: I22, I23, H22, G5, G28.

Suggested Citation

Kargar, Mahyar and Mann, William, The incidence of student loan subsidies: Evidence from the PLUS program (February 7, 2018). Available at SSRN: https://ssrn.com/abstract=2814842 or http://dx.doi.org/10.2139/ssrn.2814842

Mahyar Kargar

University of Illinois at Urbana-Champaign - Department of Finance ( email )

Champaign, IL 61820
United States

HOME PAGE: http://mahyarkargar.com

William Mann (Contact Author)

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States

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