Using unique survey and administrative data from Canada, we document that parental support and personal savings substantially reduce student loan repayment problems. Developing a model of student borrowing and repayment, we show that nonmonetary costs of applying for income-based repayment assistance are critical to understanding our findings. Furthermore, we show that eliminating these costs may be inefficient. Empirically, we show that expanding Canada's Repayment Assistance Plan to automatically cover all borrowers could reduce program revenue by half over early repayment years. Finally, we show how student loan programs can be more efficiently designed.
Lochner, Lance, Todd Stinebrickner, and Utku Suleymanoglu.
"Parental Support, Savings, and Student Loan Repayment."
American Economic Journal: Economic Policy,
Household Finance: Household Saving, Borrowing, Debt, and Wealth
Educational Finance; Financial Aid
Higher Education; Research Institutions
Education: Government Policy