Type of Document	Dissertation
Author	Keightley, Mark Patrick
URN	etd-11062008-161014
Title	Essays In Human Capital Investment
Degree	Doctor of Philosophy
Department	Economics, Department of
Advisory Committee	Advisor Name Title David Macpherson Committee Chair Farasat Bokhari Committee Member Milton Marquis Committee Member Alec Kercheval Outside Committee Member
Keywords	Student Loans Borrowing Constraints Human Capital Oaxaca Decomposition
Date of Defense	2008-10-31
Availability	unrestricted
Abstract A topic of great interest to economists, educators, and policy makers for some time has been the effectiveness of college financial aid. The second chapter of this dissertation analyzes the effectiveness of three different types of education policies: tuition subsidies (broad based, merit based, and flat tuition), grant subsidies (broad based and merit based), and loan limit restrictions. A quantitative theory of college is developed within the context of general equilibrium overlapping generations economy. College is modeled as a multi-period risky investment with endogenous enrollment, time-to-degree, and dropout behavior. Tuition costs can be financed using federal grants, student loans, and working while at college. The model predicts that broad based tuition subsidies and grants increase college enrollment. However, due to the correlation between ability and financial resources most of these new students are from the lower end of the ability distribution and eventually dropout or take longer than average to complete college. Merit based education policies counteract this adverse selection problem but at the cost of a muted enrollment response. Our last policy experiment highlights an important interaction between the labor-supply margin and borrowing. A significant decrease in enrollment is found to occur only when borrowing constraints are severely tightened and the option to work while in school is removed. This result suggests that previous models that have ignored the student's labor supply when analyzing borrowing constraints may be insufficient. Recently focused has been directed toward understanding the amount of debt that college students incur. The third chapter analyzes subsidized Stafford loan borrowing between the 1992-93 and 2003-04 school years. During this time subsidized Stafford borrowing by full-time undergraduates increased from 42.9 percent to 50.5 percent. At the same time, the fraction of full-time subsidized borrowers constrained by the maximum student loan limit increased from 53.7 percent to 67.2 percent. A decomposition method similar to the one developed by Blinder (1973) and Oaxaca (1973) for linear regression models, and later generalized to the probit framework by Even and Macpherson (1990), is used to identify the key factors responsible for the increase in the subsidized Stafford loan participation rate and the increased fraction of subsidized borrowers constrained by the maximum loan limit. The model underlying the decomposition accounts for sample selection in the borrowing decision-making process Overall, the results presented in Chapter 3 suggest that increases in the real cost of college can explain the majority of the rise in subsidized Stafford loan borrowing
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