Student Loans and Social Mobility

91 Pages Posted: 27 Aug 2020 Last revised: 27 Oct 2022

Date Written: October 25, 2022

Abstract

Students from poor families invest much less in college education than rich families. To assess the role of finance and subsidy schemes, I estimate a model of college choice with financing frictions. I find that the college education gap is mainly due to heterogeneity in preparedness for college; frictionless access to student loans would substantially increase consumption during college but would only marginally affect the investment gap in college education. Making public colleges tuition-free would mitigate financing constraints, but overall it would entail more than $15B deadweight loss per year and would disproportionately benefit wealthier students. Expanding federal Pell grants, in contrast, would benefit lower-income students at a much lower cost.

Keywords: Education Finance, Human Capital, Intergenerational Mobility, Student Loans, Financial Aid, Financing Frictions, Household Finance

JEL Classification: I22, I24, G18, H52, H81, J24, J62, D14

Suggested Citation

Ebrahimian, Mehran, Student Loans and Social Mobility (October 25, 2022). Jacobs Levy Equity Management Center for Quantitative Financial Research Paper, Available at SSRN: https://ssrn.com/abstract=3680159 or http://dx.doi.org/10.2139/ssrn.3680159

Mehran Ebrahimian (Contact Author)

Stockholm School of Economics ( email )

Drottninggatan 98
Swedish House of Finance
Stockholm, Stockholm 11160
Sweden

HOME PAGE: http://www.mehranebrahimian.com/

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