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Category Archives: I2

Predictors of Student Loan Repayments: A Comparison Between Public, Private For-Profit and Private Nonprofit Schools

by Mannat Bakshi and Arjun Ahluwalia

Using a sample of over 3,500 colleges from the College Scorecard Dataset , we investigate the association of average federal student loan repayment rates with institutional, regional, and student demographic characteristics of colleges. We consider educational cohorts from 2010 to 2016 at public, private for-profit, and private non-profit institutions. Our data do not allow us to see individual student characteristics, hence we control for traits of the average student in each college and focus on institutional traits that impact repayment rates. Our controls for demographics are consistent with prior research on student loan repayment rates (Lochner and Monge-Naranjo, 2014; Kelchen and Li, 2017).

We ran a Random Effects panel regression to determine how institutional, regional, and student demographic characteristics impact repayment rates. We see an important influence of the institution attended. Institution selectivity (lower admission and withdrawal rates) is associated with higher average repayment. Furthermore, the highest degree awarded is a more significant variable when it comes to describing the variation in repayment rates for public schools; private for-profit schools exhibit lower repayment rates and private nonprofit schools exhibit higher repayment rates regardless of the highest degree awarded. This could be due to a combination of signaling and screening effects. Local income and unemployment impact repayment for the average student in public and for-profit schools, but not in private non-profit schools.

A noticeable institutional finding is that, even after controlling for average school demographics, for-profit schools exhibit lower repayment rates across all types of degree-granting programs. Attending a for-profit school may be a negative signal of ability or value to potential employers. Median family income positively affects repayment twice as much for for-profit schools compared to other school types. These finding on for-profit institutions help explain Obama’s “crack down on for-profit career training colleges” (Simon & Emma, 2014).

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Advisor: Professor Genna Miller | JEL Codes: I2, I22, I26

Navigating the Maize of Poverty: Intra-Household Allocation and Investment in Children’s Human Capital in Tanzania

By Saheel Chodavadia  

Intra-household resource allocation influences investment in children’s human capital and hence influences long-term poverty levels. I study how climate shocks in Tanzania shift intra-household bargaining power and investment in children’s human capital. Past empirical work finds that bargaining power is associated with income, assets, education, and other often unobservable factors. Anthropological evidence from Tanzania suggests that male decision-makers in poor households control most income and own most assets. Conditioning on changes in total household resources due to climate shocks, I find evidence consistent with climate shocks increasing female bargaining power through a reduction in male decision-maker’s income. Specifically, climate shocks in households with more educated women increase investment in children’s education and improve anthropometric measures of health. Lastly, I comment on the usefulness of relative education as a proxy for bargaining power in contexts of data and cultural limitations on distinct assets and income streams for decision-makers.

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Advisors: Professor Robert Garlick, Professor Michelle Connolly | JEL Codes: D0, D13, I20

Bridging the Persistence Gap: An Investigation of the Underrepresentation of Female and Minority Students in STEM Fields

By Aaditya Jain and Bailey Kaston

Prior literature on mismatch theory has concentrated primarily on minority students, whose lower average levels of pre-enrollment preparedness tend to discourage them from persisting in STEM fields as often as their non-minority counterparts at selective universities. Our study shifts the focus to the persistence gap between men and women, invoking social cognitive career theory to investigate how factors beyond preparedness – such as self-confidence – cause women to switch out of selective STEM programs at higher rates than men. Using the High School Longitudinal Study of 2009, we investigate the drivers of STEM persistence for all students and arrive at two main conclusions. First, higher levels of STEM preparedness are more beneficial to STEM persistence at selective universities, confirming mismatch theory in the sample. We then simulate the counterfactual scenario and find that 33% of students at selective schools would have been more likely to persist in STEM had they attended less selective schools, a figure that reaches 50% for underconfident female students. This observation ties to our second conclusion – that underconfidence in math relative to one’s true performance decreases the likelihood of STEM persistence for all students at selective universities, and that female students at selective schools are more likely to be underconfident than their male counterparts. Our findings suggest that the appropriate policy solution to reduce STEM attrition rates among women should then become a two-pronged approach: (1) more selective universities should better support the STEM self-confidence levels of female students, and (2) home environments should ideally cultivate that self-confidence long before women even reach college. In our final set of analyses, we thus explore the factors that drive math overconfidence in the first place, and conclude that both student and parental biases against female STEM ability are detrimental to the STEM self-confidence of female students.

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Advisors: Professor Peter Arcidiacono, Professor Michelle Connolly | JEL Codes: I2, I24, I26

Exploring an Alternative to Student Loans- Constructing the Demand for Income Share Agreements

By Paul Zimmer and Alex Hilsenrath

With the rapid growth in the US student loan market and rising default rates in the space, students and universities have begun to explore other methods to fund rising undergraduate education costs. This paper will seek to analyze a proposed financing solution, exploring a theoretical market for a financial mechanism known as an Income Share Agreement, or ISA. Currently, the market for ISAs is relatively unpenetrated and not institutionalized. Under a theoretical institutionalized market, the paper will pursue a framework which compares a student’s preference for an ISA versus a private student loan. The objective is to determine under what circumstances and what variables determine when a student will prefer an ISA versus a private student loan, and vice versa. We first evaluate a student’s CARA utility function under an ISA and under private debt. We find that under some degree of risk-aversion, the individual will strictly prefer the ISA financing option. Next, we introduce the concept of moral hazard in the student’s optimization problem. When solving the optimization problem, we determine that a relationship exists between degree of risk aversion, variance of the income distribution, principal amount borrowed, and student’s earning ability when choosing between an ISA and a private student loan. We then examine this relationship in the context of a mixed financing strategy and solve for the optimal mixed financing bundle. Finally, we introduce the concept of adverse selection based upon asymmetric information between the borrower and the financier.

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Advisors: Professor Curtis Taylor | JEL Codes: I2, I22, I23

Cashing Out the Benefits: The Spillover Impact of Cash Transfers on Household Educational Investment

By Mitchell Garrett Ochse and Matheus Dias

Using electricity price, generation, installed capacity, and carbon price data from the European Union from January 2015 to December 2018, this study finds that the carbon pricing in the European Union Emissions Trading Scheme (EU ETS) incentivizes electricity sector carbon emission reductions through renewable energy deployment only for economically advanced EU members. Transitional economies show a weak to modest carbon emission increase despite a common carbon price. This study estimates an electricity supply curve, or merit order, for 24 EU ETS members using a Tobit regression model and analyzes changes in this curve using a linear bspline. These shifts provide insight into how carbon pricing affected energy generation, price, and CO2 emissions for two distinct categories of EU member states. The advanced category as a whole saw a strong electricity sector decrease in carbon emissions, both over time and from carbon pricing, while the transitional category as a whole saw a weak increase. This indicates that advanced EU members in Northern, Western, and Central Europe likely sold permits to transitional ones in Southern and Eastern Europe. While these findings may initially reflect the gains from trade of carbon emissions, permits inherent in the European Union Emissions Trading Scheme’s design, the implications of how these two distinct groups have changed electricity generation present challenges to the ultimate long-term goal of EU-wide carbon neutrality by 2050, particularly in transitional economies’ electricity sectors.

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Advisors: Professor Xiao Yu Wang, Professor Michelle Connolly | JEL Codes: C93; I21; I24

The Impact of Collegiate Athletic Success and Scandals on Admissions Applications

By William J. Battle-McDonald

This paper examines how the quantity and quality of admissions applications to Division 1 colleges and universities were affected by two non-academic factors: (1) performance of a school’s men’s basketball and football teams; and (2) scandals associated with these athletic programs. Admissions data from 2001 – 2017 were compared to team performance during their football and basketball seasons in order to understand how these non-academic factors contribute to an individual’s decisions to apply for admission. A multivariate linear regression model with school and year fixed effects supported the hypothesis that athletic success positively affects the quantity of applications, increasing them by up to 3% in basketball and 11% in football in the following application period. Seasonal football success was also shown to have negative impacts on the distribution of standardized testing scores of future applicant classes, however these scores were shown to increase when a team played their best season in five or more years. Additional analysis of the effects of athletic program scandals reveals a significant negative effect on the number of applications received, although a deep dive into a few of the most prominent scandals suggests that the benefits associated with violating NCAA rules may, under the right circumstances, be well worth the risk.

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Advisor: Dr. James Roberts | JEL Codes: I23, J24, L82, L83, Z2

The Impact of Violence in Mexico on Education and Labor Outcomes: Do Conditional Cash Transfers Have a Mitigating Effect?

By Hayley Jordan Barton

This research explores the potential mitigating effect of Mexico’s conditional cash transfer program, Oportunidades, on the education and labor impacts of increased homicide rates. Panel data models are combined with a difference-in-differences approach to compare children and young adults who receive cash transfers with those who do not. Results are very sensitive to specification, but Oportunidades participation is shown to be positively associated with educational attainment regardless of homicide increases. Homicides are associated with decreases in likelihood of school enrollment and compulsory education completion; however, they also correspond with increases in educational attainment, with a larger effect for Oportunidades non-recipients.

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Advisors: Dr. Charles Becker, and Dr. Michelle Connolly | JEL Codes: C23; D15; I20; I38; J24

Analyzing Student and Family-Level Effects on a Family’s Contributions to Fund a College Education

By Justin T. Rosenblum and John H. Zipf

We investigate the efficiency of the current financial aid system for prospective college students. The Free Application for Federal Student Aid (FAFSA) form reviews a family’s financial information and universities review a student’s academic prowess, but neither fully examines students and their family’s qualitative factors such as parents’ highest education level or intended major. Using the National Center for Education Statistics’ National Postsecondary Student Aid Study, we investigate academic, financial, and familial characteristics to determine if they impact a student’s level of private loans relative to their total cost of attendance. We find that students with parents who did not receive a college degree are adversely affected by the current financial aid system. In particular, these students take out a greater amount of private loans relative to their total cost of attendance all else equal. Our finding has wider policy implications; changing the current financial aid system to assist disadvantaged students could help reduce intergenerational education inequalities. In addition, colleges could reach a broader range of students by helping
the students that currently struggle the most to pay tuition.

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Advisors: Michelle Connolly, Hugh Macartney and Kent Kimbrough | JEL Codes: I2, I22, I23

Benefit Spillovers and Higher Education Financing: An Empirical Analysis of Brain Drain and State-Level Investment in Public Universities

By Chinmany G. Pandit

This paper analyzes the impact of out-migration of college graduates on state higher education investment. A three-stage least squares regression model with state and year fixed effects is developed and estimated, addressing the relationship between state legislative appropriations, tuition, and educated out-migration across 49 U.S. states from 2006-2015. The results support the notion that states respond negatively to benefit spillovers in higher education: for every one percent increase in the rate of educated out-migration, state appropriations decrease by 1.92 percent (roughly $140 per student). These findings suggest that an education subsidy
provided to states may be necessary to prevent underinvestment in higher education.

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Advisor: Thomas Nechyba | JEL Codes: H7, H75, I22, I28, R23

Measuring the Long-term Effects of Orphanhood

By Nicholas Thomas Gardner

This paper works towards developing the narrative of orphans whose parent or parents died from natural disaster. By taking advantage of the unanticipated nature of death from the 2004
Indonesian tsunami, orphanhood can be treated as much closer to random than similar literature using data centered on HIV/AIDS related deaths. We use a community level fixed effects model to attempt to derive a causal relationship between orphanhood and both education and log wages. Our models suggest that orphaned males aged 14 and older at baseline complete 1-2 fewer years of education than their cohorts. The adverse effects persist in the long-term, as these orphans earn 26% less than non-orphan cohorts.

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Advisors: Duncan Thomas and Kent Kimbrough | JEL Codes: I24, I25, I31, J24, J31

Questions?

Undergraduate Program Assistant
Jennifer Becker
dus_asst@econ.duke.edu

Director of the Honors Program
Michelle P. Connolly
michelle.connolly@duke.edu