Association for Public Policy Analysis & Management

A large literature finds that credit constraints hinder human capital formation, while higher parental resources augment it. With increasing college costs and returns, the role of credit constraints has become even more salient. In this paper, we build on this literature and study the effect of credit access (while in college) on a series of long term outcomes.

We make several contributions to the literature. First, while the existing literature mostly studies the effect of access to credit on college outcomes, we study the effect on long term student outcomes such as migration on the one hand and financial and economic outcomes on the other (homeownership, credit scores, consumption, and defaults and delinquencies). Second, we bring a unique dataset to bear to answer these questions, a merger between two large administrative datasets of credit and educational outcomes respectively. Third, we also contribute to the literature studying the impact of merit aid programs on student outcomes.

Over the course of past two decades and a half, more than half of the U.S. states have instituted merit aid programs. Exploiting across time and across states variation in the implementation of merit programs, we utilize an event study framework to investigate the effect of merit eligibility on outcomes at each ages 17-35.

Our dataset leverages a unique merger between two large administrative datasets: the New York Fed Consumer Credit Panel (CCP) and the National Student Clearinghouse (NSC). The CCP includes consumer credit records sourced from Equifax credit bureau, while NSC includes individual level postsecondary education records. The credit data gives us a wealth of financial and economic outcomes such as credit score, homeownership, car ownership, consumption, defaults, delinquencies, foreclosures and bankruptcies. The education dataset allows us to observe enrollment, graduation/dropout, major, enrollment status and persistence. The merged dataset allows us to observe financial/economic outcomes and educational enrollment and attainment over time for a random sample of 225,000 individuals.

In addition to the above outcomes, CCP reports location (down to census block) for each individual every quarter. This enables us to investigate the effect of merit aid programs on location choices of individuals in the labor market. One may argue that in-state college attendance would increase ties to one’s home. On the other hand, better access to resources could improve graduation, which in turn may make individuals more mobile. Thus locations choice is ultimately an empirical question that we aim to address empirically.

We find merit aid eligibility increased propensity to go to college, decreased propensity to take out student loans, increased credit scores and increased the probability that the student stays in her home state. We see positive effects on a host of other financial and economic outcomes as well. This paper promises to be valuable in that it will enable us understand the effect of relaxation of credit constraints while in college not only on college outcomes but importantly, on long term financial and economic outcomes of individuals as well as their migration decisions.