Borrowing Constraints, College Aid, and Intergenerational Mobility

Eric A. Hanushek
Charles Ka Yui Leung
Kuzey Yilmaz
Published Date
Spring 2014
Journal of Human Capital
pp. 1-41
This paper provides a consistent comparison of general tuition subsidies, need-based student aid, merit-based student aid, and income contingent loans (ICL). Each of these policies is analyzed through a dynamic general equilibrium model in which individuals differ in family wealth and opportunities for completing college. The overlapping generation structure of the model permits evaluation of different aid schemes in their implications for aggregate outcomes, income distribution and intergenerational mobility. Compared to current U.S. tuition and loan policies, the ICL and need-based policies are most effective in promoting aggregate efficiency and income equality, while merit-based policies are least effective.