Job Market Paper

Empirical studies have found that high achieving, low-income students are less likely to apply to selective colleges despite the generous financial aid typically offered. To reconcile this seeming puzzle, we build a structural model of the U.S. college market featuring tuition discrimination and a decentralized admissions system. Students, who differ in their financial resources and innate ability, apply to a subset of colleges and are uncertain about their prospective admissions and financial aid. Colleges observe a noisy signal of student ability and compete by choosing admissions standards and tuition schedules. We find in our estimated model that differences in application rates are due to student expectations over admissions and financial aid, which are consistent with college policies in equilibrium. Low-income students receive generous financial aid at selective colleges because only the highest-ability among them apply, making their signals highly informative. If signals became less informative (e.g., colleges stopped using the SAT), all high-ability students would be worse off and only high-income, low-ability students would modestly benefit. Finally, we find overall welfare gains from increasing Federal need-based financial aid, which would greatly benefit low-income, high-ability students by alleviating credit constraints.

Presentations: Washington University EGSC Conference, Warwick Economics PhD Conference, UPenn

Work In Progress

Earnings Risk, Student Loan Repayment, and College Completion

This paper studies the effect of student loan repayment policy on college enrollment and completion behavior. Using college student-level data, I show that a student’s grades in a given academic year are predictive of whether the student drops out that year. However, only 15% of students reported dropping out for academic reasons, suggesting that separation is due mostly to student choices rather than academic failure. I then build a model of college enrollment and completion where students learn about their risky future earnings potential and have the option to drop out. The model is calibrated to match key features of the student-level data and is used to study the effects of switching to an income-contingent loan system to improve risk-sharing among college graduates. The model contrasts the benefits of such a system with potential adverse selection created at the enrollment and completion stage, which may be costly in the presence of high tuition levels.

Financial Intermediation and the Housing Boom and Bust (draft available upon request)