Insuring student loans against the financial risk of failing to complete college

• 成果类型: Article
• 署名作者: Chatterjee, Satyajit; Ionescu, Felicia
• 署名单位: Federal Reserve System - USA; Federal Reserve Bank - Philadelphia; Colgate University
• 刊物名称: QUANTITATIVE ECONOMICS
• ISSN/ISSBN: 1759-7323
• DOI: 10.3982/QE100
• 发表日期: 2012
• 页码: 393-420
• 关键词: College risk; government student loans; optimal insurance

摘要

Participants in student loan programs must repay loans in full regardless of whether they complete college. But many students who take out a loan do not earn a degree (the dropout rate among college students is between 33 and 50 percent). We examine whether insurance, in the form of loan forgiveness in the event of failure to complete college, can be offered, taking into account moral hazard and adverse selection. To do so, we develop a model that accounts for college enrollment and graduation rates among recent U. S. high school graduates. In our model, students may fail to earn a degree because they either fail college or choose to leave voluntarily. We find that if loan forgiveness is offered only when a student fails college, average welfare increases by 2.40 percent (in consumption equivalent units) without much effect on either enrollment or graduation rates. If loan forgiveness is offered against both failure and voluntary departure, welfare increases by 2.15 percent, and both enrollment and graduation are higher.