Essays On Student Loans, Higher Education And Inequality

Marc Folch Cordoncillo, University of Pennsylvania


This dissertation consists of two essays at the intersection of the economics of education and inequality. The first chapter analyzes how increasing levels of student debt affect career and housing choices of bachelor’s degree recipients in the United States. Using within-cohort across-school variations in financial aid policies, it shows that higher student debt balances cause a front loading of earnings, lower earnings growth, lower graduate school enrollment, and earlier entry into home ownership. Then, a life-cycle model is estimated to analyze the mechanisms behind the interaction between student debt, career and housing choices. The structural model shows that post-school credit constraints generate a trade-off between career and housing choices for highly indebted graduates, playing a key role in explaining lifetime earnings inequality. Relative to the baseline 10-year fixed repayment plan, an income based repayment plan (or a more ambitious student loan forgiveness plan) increases human capital accumulation and earnings growth, while postponing entry into home ownership. The second chapter studies the evolving role of the higher education market in shaping earnings inequality in the United States. Using detailed institution-level data linked to administrative students earnings records, I document an increasing trend in post-school earnings inequality among students attending different four-year colleges and universities between 1997 and 2009. I then estimate the school quality production function as a composite of instructional expenditure per student and average (and dispersion of) students ability. The point estimates suggest that college readiness has a higher weight on explaining variation in post-school earnings relative to expenditure per student. Finally, I show a growing variation in both quality inputs, consistent with an increase in inequality in net tuition revenue and increasing relative demand for private non-profit doctoral universities.