Essays in Finance and Inequality
Abstract
Students of lower-income families invest much less in college education than higher-income families. To assess the role of financing constraints and subsidy schemes in explaining this gap, I structurally estimate a model of college choice in the presence of financing frictions. The estimation uses novel nationally representative data on US high-school and college students. I propose a novel identification strategy that relies on bunching at federal Stafford loan limits and differences between in- and out-of-state tuition. I find that the college investment gap is mainly due to fundamental factors: heterogeneity in preparedness for college and the (perceived) value-added of college. Frictionless access to student loans would substantially increase consumption during college but would leave the investment in college education mainly unaffected. I show that making public colleges tuition-free would mitigate financing constraints, but it would overall entail more than $15B deadweight loss per year and would disproportionately benefit wealthier students. Expanding Pell grants, in contrast, would benefit lower-income students at a much lower cost.
Subject Area
Finance|Education|Economic theory|Education finance|Economics|Education Policy
Recommended Citation
Ebrahimian, Mehran, "Essays in Finance and Inequality" (2022). Dissertations available from ProQuest. AAI29163228.
https://repository.upenn.edu/dissertations/AAI29163228