The Nature of Credit Constraints and Human Capital
Lance J. Lochner, Alexander Monge-Naranjo
American Economic Review · 2011 · Volume 101 · Issue 6
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 United States, 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. (JEL D14, H52, I22, I23, J24)
Keywords
Personal Finance, National Government Expenditures and Education, Educational Finance, Higher Education and Research Institutions, Human Capital, Skills, Occupational Choice, Labor Productivity
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