Student Loans, Marginal Costs, and Markups: Estimates From the PLUS Program

Mahyar Kargar, William Mann

Research output: Working paper

Abstract

We estimate small marginal costs and large markups at private colleges in the United States, and discuss implications for the design of financial aid. For identification, we exploit a tightening of credit standards in the PLUS loan program, which decreased enrollment, revenues, and expenditures at private colleges with low-income students. We estimate that markups represented more than half of charges for students disqualified by the change. Markups were higher at for-profit schools, and in states with fewer public schools and lower education spending. Our results complement prior evidence on the Bennett Hypothesis, and contrast prior estimates of small markups.
Original languageEnglish (US)
Number of pages45
DOIs
StatePublished - Jul 28 2016
Externally publishedYes

Keywords

  • Student loans
  • PLUS loans
  • Bennett Hypothesis
  • Credit histories
  • Higher education
  • Subsidy incidence

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