March 28, 2023, 15:30–16:50
Room Auditorium 4
Econometrics and Empirical Economics Seminar
We investigate the equilibrium effects of subsidized student loans on tuition costs, enrollment, and student welfare. Two opposing forces make the impact on tuition theoretically ambiguous. First, students with loans become less price-sensitive because they do not bear the total tuition cost, causing tuition to rise (direct effect). Second, loan programs tend to increase the market share of more price-sensitive students, reducing tuition (composition effect). We develop a model of the supply and demand for higher education and estimate it leveraging a large change in the availability of student loans in Brazil. We find that Brazil's current loan program raises prices by 1.6% and enrollment by 11% relative to a counterfactual without loans. We decompose the price effect into its direct (2.7% increase) and composition (1.1% decrease) components. Finally, we show that an alternative policy that gives loans only to low-income students raises enrollment by 16% relative to a counterfactual without loans. Most of the difference in enrollment between the two policies are due to price reductions coming from a stronger composition effect in the alternative policy.