Essays in human capital and education finance [electronic resource]
Keywords: Economics.

This dissertation examines several empirical questions in human capital and education finance. My main research agenda focuses on how to design an efficient system for human capital investments. Student loans exist to alleviate credit constraints, which can arise due to imperfect information. This dissertation focuses on how to design a system for human capital investments by examine key components of educational borrowing. The following chapters focus on the effects of credit constraints, how these arise and document recent trends in educational borrowing in the United States. This has become a key issue in government finance, as student loans are now the largest source of non-mortgage household debt in the United States. Chapter 1 focuses on the whether credit constraints affect demand for higher education. This chapter uses staggered bank branching deregulation across states in the United States to examine the impact of the resulting increase in the supply of credit on college enrollment from the 70s to early 90s. The research design produces estimates that are not confounded by wealth effects. Lifting branching restrictions raises college enrollment by about 2 percentage points (4%). The results rule out alternative interpretations to the credit constraints channel. First, the effects are largest for low and middle income families, while insignificant for upper income families as well as bankrupt families who would have been unaffected by the increased access to private credit. Second, the effect of lifting branching restrictions subsided immediately following periods of increased loan limit through government student loan programs. We also show that household educational borrowing increased as a result of lifting branching restrictions. The results provide novel evidence that credit constraints play an important role in determining household college enrollment decisions in the United States. This chapter is coauthored with my classmate Stephen Teng Sun. Chapter 2 studies information asymmetries in the student loan market. This chapter examines the rise in student loan delinquency and default drawing on administrative data on federal student borrowing, matched to earnings records from de-identified tax records. Most of the increase in default is associated with the rise in the number of borrowers at for-profit schools and, to a lesser extent, community colleges and certain other non-selective institutions, whose students had historically composed only a small share of borrowers. These non-traditional borrowers were drawn from more disadvantaged circumstances, attended institutions with relatively weak educational outcomes, and experienced poor labor market out- comes after entering repayment. In contrast, default rates among borrowers attending most 4-year public and private institutions and graduate borrowers who represent the vast majority of the federal loan portfolio have remained low, despite the severe re- cession and their relatively high loan balances. Their generally high earnings, low rates of unemployment, and greater family resources appear to have enabled them to avoid adverse loan outcomes even during times of hardship. Decomposition analysis results indicate that changes in characteristics of borrowers and the institutions they attended explain much of the doubling in default rates between 2000 and 2010, with changes in the type of schools attended, debt burdens, and labor market outcomes of non-traditional borrowers at for-profit and community colleges explaining the largest share. Chapter 3 examines recent trends in the US student loan market. This chapter examines the rise in student loan delinquency and default drawing on a unique set of administrative data on federal student borrowing, matched to earnings records from de- identified tax records. Most of the increase in default is associated with the rise in the number of borrowers at for-profit schools and, to a lesser extent, 2-year institutions and certain other non-selective institutions, whose students historically composed only a small share of borrowers. These non-traditional borrowers were drawn from lower income families, attended institutions with relatively weak educational outcomes, and experienced poor labor market outcomes after leaving school. In contrast, default rates among borrowers attending most 4-year public and non-profit private institutions and graduate borrowers- borrowers who represent the vast majority of the federal loan portfolio have remained low, despite the severe recession and their relatively high loan balances. Their higher earnings, low rates of unemployment, and greater family resources appear to have enabled them to avoid adverse loan outcomes even during times of hardship. Decomposition analysis indicates that changes in characteristics of borrowers and in the institutions they attended are associated with much of the doubling in default rates between 2000 and 2011. Changes in the type of schools attended, debt burdens, and labor market outcomes of non-traditional borrowers at for-profit and 2-year colleges explain the largest share. This chapter is coauthored with Adam Looney at the US Department of the Treasury.