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Parental Credit Constraints and Children’s College Education

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Abstract

What fraction of college-age youths in the United States comes from liquidity-constrained families? This question is important because such youths may have difficulties borrowing for college education and be less likely to enroll. While most earlier studies have concluded that credit constraints in education are not pervasive, these studies have relied on indirect measures and data sources from the 1980s. The contribution of this descriptive study is the use of parents’ reports of borrowing limitations in the National Longitudinal Survey of Youth (NLSY79) Young Adult Supplement to evaluate the pervasiveness of credit constraints in the early 2000s. The results indicate that about 20 percent of college-age youths are potentially credit-constrained and are less likely to attend college.

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Notes

  1. Non-Federal student loans increased from 7% of all education loans in 1997–1998 to 24 % in 2006–2007. Federal PLUS loans to parents increased from 9 to 13 % over the same time period. In 2006–2007 over 19 billion dollars were awarded in non-federal student loans and 10.5 billion dollars in Federal PLUS loans (College Board 2008a).

  2. See, for example, studies by Manski (1992), Cameron and Heckman (1998), Ellwood and Kane (2000), Carneiro and Heckman (2002), and Belley and Lochner (2007).

  3. Throughout the paper the words credit constraints and borrowing limitations are used interchangeably. Operational definition of credit constraints is presented in the next section.

  4. Note, however, that this extended definition of credit constraints implies that borrowers are aware of their credit scores, which is often not the case, as demonstrated in the recent study by Levinger et al. (2011).

  5. Although some earlier studies, for example, Pandey and Kim (2008) show a strong positive relationship between education and economic well-being of mothers with children, there is no evidence that higher-educated women are less likely to be credit-constrained in our analysis.

  6. Unobservable characteristics correlated with early childbirth may make the extrapolation less accurate, hence the above conclusion is only tentative.

  7. This difference, however, was not statistically significant

  8. These differences were statistically significant only at the highest income quantile. Standard errors are available from the author upon request.

  9. Logistic estimates of the probability of graduating with a high school diploma and of being enrolled in college at age 21 are very similar and hence are not reported.

  10. Belley and Lochner (2007) showed that, all else equal, non-whites were significantly more likely to attend college. Their sample, however, excluded the minority oversample and children not living at home at age 16 or 17.

  11. The regression results are available from the author upon request.

  12. The regression results are available from the author upon request.

  13. One exception is a recent study by Lamdin (2008) that presented indirect evidence of excess demand for credit by showing a strong positive relationship between consumer confidence and the demand for credit.

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  1. Financial Services Regulatory Practice, PriceWaterhouseCoopers LLP, 1800 Tysons Boulevard, McLean, VA, 22102, USA

    Olga V. Sorokina

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  1. Olga V. Sorokina
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Correspondence to Olga V. Sorokina.

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Sorokina, O.V. Parental Credit Constraints and Children’s College Education. J Fam Econ Iss 34, 157–171 (2013). https://doi.org/10.1007/s10834-012-9322-3

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