Competition and Selection in Credit Markets

Coauthor: Greg Tracey

This paper surveys the literature on student lending, emphasizing empirical studies of default, credit outcomes, and earnings. Student loans exist to alleviate credit constraints, and in theory, may have different effects on outcomes through multiple channels. There is significant heterogeneity in outcomes across types of borrowers, with many adverse outcomes driven by a small set of primarily for-profit institutions. We conclude by exploring policy options such as student loan forgiveness, income-driven repayment, income-share agreements, and penalizing schools for adverse borrower outcomes. These policies lead to possible equity and efficiency tradeoffs.