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The Incidence of Student Loan Subsidies: Evidence from the PLUS Program

Author

Listed:
  • Mahyar Kargar
  • William Mann
  • Itay Goldstein

Abstract

How much do students benefit from student loan subsidies? We investigate this question, exploiting a natural experiment: a demand shock due to the 2011 tightening of credit standards in the PLUS program. 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.

Suggested Citation

  • Mahyar Kargar & William Mann & Itay Goldstein, 2023. "The Incidence of Student Loan Subsidies: Evidence from the PLUS Program," The Review of Financial Studies, Society for Financial Studies, vol. 36(4), pages 1621-1666.
    • Handle: RePEc:oup:rfinst:v:36:y:2023:i:4:p:1621-1666.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhac031
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    More about this item

    JEL classification:

    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • G5 - Financial Economics - - Household Finance
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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