Borrowing Arrangements and Returns to College Education

35 Pages Posted: 3 Nov 2018

See all articles by Sidhya Balakrishnan

Sidhya Balakrishnan

Jain Family Institute

Barry Z. Cynamon

Better Future Forward; Jain Family Institute

Date Written: October 15, 2018

Abstract

The value of a college degree is impacted by how it is financed. Using 1968-2011 PSID surveys we construct a synthetic panel of US high school and college graduates and derive a model of their respective incomes, accounting for taxes, unemployment, retirement and mortality. With CRRA utility, the differences between the returns to a four-year college degree financed by an income share agreement (ISA) and a student loan increase with higher levels of borrowing and risk aversion. On average, borrowing $30,000 diminishes the lifetime college value premium by 11% with an ISA compared to 25% with a student loan.

Keywords: Educational Finance, Returns to Education, Wage Differentials

JEL Classification: I22, I26, J31

Suggested Citation

Balakrishnan, Sidhya and Cynamon, Barry Z., Borrowing Arrangements and Returns to College Education (October 15, 2018). Available at SSRN: https://ssrn.com/abstract=3263639 or http://dx.doi.org/10.2139/ssrn.3263639

Sidhya Balakrishnan (Contact Author)

Jain Family Institute ( email )

568 Broadway
Suite 601
New York, NY 10012
United States

Barry Z. Cynamon

Better Future Forward ( email )

400 N Washington St
Suite 203
Falls Church, VA 22046
United States

HOME PAGE: http://www.betterfutureforward.org

Jain Family Institute ( email )

568 Broadway
Suite 601
New York, NY 10012
United States

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