Parental Support, Savings and Student Loan Repayment
- American Economic Journal: Economic Policy (Forthcoming)
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 non-monetary 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.
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