Student Loan Supply, Parental Saving & Portfolio Allocation
41 Pages Posted: 25 Nov 2019 Last revised: 15 May 2020
Date Written: May 7, 2020
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, in areas with higher average college expenses 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: Suggested Citation