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The Nature of Credit Constraints and Human Capital

Author

Listed:
  • Lance Lochner

    (University of Western Ontario and NBER)

  • Alexander Monge-Naranjo

    (Pennsylvania State University)

Abstract

We develop a human capital model with borrowing constraints explicitly derived from government student loan (GSL) programs and private lending under limited commitment. The model helps explain the persistent strong positive correlation between ability and schooling in the U.S., as well as the rising importance of family income for college attendance. It also explains the increasing share of undergraduates borrowing the GSL maximum and the rise in student borrowing from private lenders. Our framework offers new insights regarding the interaction of government and private lending as well as the responsiveness of private credit to economic and policy changes.

Suggested Citation

  • Lance Lochner & Alexander Monge-Naranjo, 2010. "The Nature of Credit Constraints and Human Capital," Working Papers 2011-024, Human Capital and Economic Opportunity Working Group.
    • Handle: RePEc:hka:wpaper:2011-024
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    File URL: http://www.econ.psu.edu/~aum26/AER_Monge.pdf
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy

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