Student Loan Supply, Parental Saving & Portfolio Allocation

33 Pages Posted: 25 Nov 2019 Last revised: 17 Dec 2019

See all articles by Emiel Jerphanion

Emiel Jerphanion

Tilburg University - Department of Finance; Tilburg University - Center for Economic Research (CentER)

Date Written: November 10, 2019

Abstract

I show that an expansion of student loan supply affects parents' saving decisions and portfolio allocation. By exploiting policy-induced variation on expected student aid, I find a 2.2 pp increase in the parental saving rate, from 4.9% to 6.1%. The mechanism that drives this result is the positive effect of student aid on students’ college enrollment. Consistent with this interpretation, I find a disproportionate increase in college enrollment for children of families affected by the reform. The positive saving response is largest among lower- and middle-income families and for parents with strong saving preferences. A placebo test validates that the effect is absent in families without children. Moreover, I show that affected parents shift the allocation of saving flows towards riskier assets.

Keywords: Student loans, household finance, saving behavior, portfolio choice

JEL Classification: D13, D14, E21, G11, I22

Suggested Citation

Jerphanion, Emiel, Student Loan Supply, Parental Saving & Portfolio Allocation (November 10, 2019). Available at SSRN: https://ssrn.com/abstract=3486234 or http://dx.doi.org/10.2139/ssrn.3486234

Emiel Jerphanion (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

HOME PAGE: http://sites.google.com/view/emieljerphanion/

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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