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Innis Lecture: Returns on student loans in Canada

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  • Lance Lochner
  • Qian Liu
  • Martin Gervais

Abstract

This paper uses new administrative data with detailed borrower information and lengthy repayment histories from the Canada Student Loans Program (CSLP) to measure rates of return on undergraduate student loans. We document substantial heterogeneity in returns based on information available at the time loans were disbursed, including province of residence, field of study and institution of attendance. Field of study is a particularly important determinant of rates of return, explaining 22% of the variation in predicted returns across borrowers. We explore the implications of this variation for CSLP cross‐subsidization across borrowers and potential risk‐based loan limits. Given the variation in ex ante predicted returns across borrowers, using all available information at the time of loan disbursement, we study the implications of potential cream‐skimming of high‐return borrowers by private lenders. Rendement des prêts étudiants au Canada. Cet article utilise de nouvelles données administratives comprenant des renseignements détaillés sur les emprunteurs et les antécédents de remboursement sur une longue période du Programme canadien de prêts aux étudiants (PCPE) pour mesurer le taux de rendement des prêts aux étudiants de premier cycle. Selon les renseignements disponibles au moment du versement des prêts, y compris la province de résidence, le champ d’études et l’établissement fréquenté, nous constatons une hétérogénéité importante du rendement. Le champ d’études est un déterminant particulièrement important du taux de rendement, et il explique l’écart de 22 % du rendement prévu observé d’un emprunteur à l’autre. Nous explorons les répercussions de cette variation sur l’interfinancement du PCPE d’un emprunteur à l’autre et les éventuelles limites des prêts fondées sur le risque. Compte tenu de la variation du rendement ex ante prévue d’un emprunteur à l’autre, en utilisant tous les renseignements disponibles au moment du versement du prêt, nous étudions les répercussions d’un éventuel écrémage des emprunteurs à rendement élevé par les prêteurs privés.

Suggested Citation

  • Lance Lochner & Qian Liu & Martin Gervais, 2021. "Innis Lecture: Returns on student loans in Canada," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(4), pages 1495-1524, November.
    • Handle: RePEc:wly:canjec:v:54:y:2021:i:4:p:1495-1524
    DOI: 10.1111/caje.12561
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    References listed on IDEAS

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    1. Lance J. Lochner & Alexander Monge-Naranjo, 2014. "Default and Repayment Among Baccalaureate Degree Earners," University of Western Ontario, Centre for Human Capital and Productivity (CHCP) Working Papers 20141, University of Western Ontario, Centre for Human Capital and Productivity (CHCP).
    2. Puelz, Robert & Snow, Arthur, 1994. "Evidence on Adverse Selection: Equilibrium Signaling and Cross-Subsidization in the Insurance Market," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 236-257, April.
    3. Lance Lochner & Todd Stinebrickner & Utku Suleymanoglu, 2021. "Parental Support, Savings, and Student Loan Repayment," American Economic Journal: Economic Policy, American Economic Association, vol. 13(1), pages 329-371, February.
    4. Adam Looney & Constantine Yannelis, 2015. "A Crisis in Student Loans? How Changes in the Characteristics of Borrowers and in the Institutions They Attended Contributed to Rising Loan Defaults," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 46(2 (Fall)), pages 1-89.
    5. Deborah Lucas, 2010. "Measuring and Managing Federal Financial Risk," NBER Books, National Bureau of Economic Research, Inc, number luca07-1.
    6. Lochner, L. & Monge-Naranjo, A., 2016. "Student Loans and Repayment," Handbook of the Economics of Education,, Elsevier.
    7. Nicole M. Fortin, 2019. "Increasing earnings inequality and the gender pay gap in Canada: Prospects for convergence," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 52(2), pages 407-440, May.
    8. Brad Hershbein & Kevin M. Hollenbeck (ed.), 2015. "Student Loans and the Dynamics of Debt," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number sldd.
    9. Lucas, Deborah (ed.), 2010. "Measuring and Managing Federal Financial Risk," National Bureau of Economic Research Books, University of Chicago Press, number 9780226496580, August.
    10. Nicole M. Fortin, 2019. "Increasing earnings inequality and the gender pay gap in Canada: Prospects for convergence," Canadian Journal of Economics, Canadian Economics Association, vol. 52(2), pages 407-440, May.
    11. Deborah Lucas, 2010. "Introduction to "Measuring and Managing Federal Financial Risk"," NBER Chapters, in: Measuring and Managing Federal Financial Risk, pages 1-12, National Bureau of Economic Research, Inc.
    12. Nadia Karamcheva & Jeffrey Perry & Constantine Yannelis, 2020. "Income-Driven Repayment Plans for Student Loans: Working Paper 2020-02," Working Papers 56337, Congressional Budget Office.
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    Cited by:

    1. Martin Gervais & Qian Liu & Lance Lochner, 2023. "The Insurance Implications of Government Student Loan Repayment Schemes," AEA Papers and Proceedings, American Economic Association, vol. 113, pages 535-540, May.

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