Siddhartha Biswas

Job market paper

Federal Student Loans, College Choice, and Student Welfare

I examine the role of federal loans on access to higher education and student welfare by modeling students' postsecondary investments in human capital. I develop a dynamic discrete choice model of a student's decision to apply to college, to enroll in a college in which she is admitted, and to finance education, either by borrowing or working, in the presence of borrowing constraints. I estimate the structural parameters of this forward-looking decision process using data from two cohorts of students who enter college before and after a rare increase to federal loan limits in 2007 and 2008. Analysis of counterfactual policies shows that raising loan limits increases enrollment, specifically towards four-year non-elite colleges, and improves persistence of enrollment. Welfare gains are concentrated among high-ability students, who benefit from relaxed credit constraints across the income distribution. These gains are comparable to providing free non-elite college within a state at a fraction of the policy cost. While free public college encourages enrollment, sorting to community colleges and four-year colleges by income and ability may not reduce existing gaps in the quality of college attended. However, there is a tradeoff: accounting for supply side college pricing responses reduces welfare gains nontrivially, specifically for low-income students.