Student Posters Repository

Borrowing for college has been increasing and the number of graduates having difficulty repaying student loans remains high. Besides student loans, family transfers are also important sources of funding for college education. Evidence shows that parents not only pay for their kids' college expanses, but also provide potential support when youths have repayment problems. Though previous literature finds little effects of increasing borrowing limits during college on college enrollment, the high student loans default rate indicates that youths may be constrained after college and this may affect their educational choices, especially for those with little parental resources. This paper examines the effects of borrowing constraints and parental transfers, both during college and after college, on educational attainment and human capital investment. Parent's inter vivos transfers are modelled endogenously, along with youth's education, repayment, and labor market choices. The model can provide quantitative implications on the insurance role played by parents and the effects when additional credit or insurance such as income-contingent repayment plan is introduced. The model is estimated using National Longitudinal Survey of Youth 1997. The effects of counterfactual policy such as relaxing borrowing constraint, providing tuition subsidies, and adopting alternative repayment plans on college enrollment and human capital investment are examined.