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Discussion Paper
Comparing Three Credit Scoring Models /Rachael Beer, Felicia Ionescu, and Geng Li.
Our analysis uses a different, unique proprietary dataset that features three frequently used credit scores for each individual. Compared with the dataset used in the CFPB report, this dataset includes more recent time periods and provides a longer historical perspective of credit score comparisons.
Working Paper
Insuring student loans against the financial risk of failing to complete college
Participants in student loan programs must repay loans in full regardless of whether they complete college. But many students who take out a loan do not earn a degree (the dropout rate among college students is between 33 to 50 percent). We examine whether insurance, in the form of loan forgiveness in the event of failure to complete college, can be offered, taking into account moral hazard and adverse selection. To do so, we develop a model that accounts for college enrollment and graduation rates among recent US high school graduates. In our model students may fail to earn a degree because ...
Working Paper
Lending Standards and Borrowing Premia in Unsecured Credit Markets
Using administrative data from Y-14M and Equifax, we find evidence for large spreads in excess of those implied by default risk in the U.S. unsecured credit market. These borrowing premia vary widely by borrower risk and imply a nearly flat relationship between loan prices and repayment probabilities, at odds with existing theories. To close this gap, we incorporate supply frictions – a tractably specified form of lending standards – into a model of unsecured credit with aggregate shocks. Our model matches the empirical incidence of both risk and borrowing premia. Both the level and ...
Working Paper
Default Risk and Private Student Loans: Implications for Higher Education Policies
The private market for student loans has become an important source of college financing in the United States. Unlike government student loans, the terms on student loans in the private market are based on credit status. We quantify the importance of the private market for student loans and of credit status for college investment in a general equilibrium heterogeneous life-cycle economy. We find that students with good credit status invest in more college education (compared to those with bad credit status) and that this effect is more pronounced for low-income students. Furthermore, results ...
Discussion Paper
Are Income and Credit Scores Highly Correlated?
To the best of our knowledge, statistical analysis on the relationship between income and credit scores using proper data remains scant. Using a unique proprietary data set, this note attempts to fill the gap in our understanding of this relationship.
Briefing
Who Values Access to College?
A quantitative model of college enrollment suggests that the value of college access varies greatly across individuals. Forty percent place no value on the option to attend despite large public subsidies, while 25 percent would enroll even without the subsidies. In the model, redirecting public funds from those who attend college irrespective of subsidies to those who don’t attend even with subsidies both preserves college enrollment and improves overall outcomes. While these two groups are clearly visible only in the model, and not in the data, this analysis suggests that more-targeted ...
Working Paper
Stock Market Investment: The Role of Human Capital
Portfolio choice models counter factually predict (or advise) almost universal equity market participation and a high share for equity in wealth early in life. Empirically consistent predictions have proved elusive without participation costs, informational frictions, or non standard preferences. We demonstrate that once human capital investment is allowed, standard theory predicts portfolio choices much closer to those empirically observed. Two intuitive mechanisms are at work: For participation, human capital returns exceed financial asset returns for most young households and, as ...
Working Paper
Insuring student loans against the risk of college failure
Participants in student loan programs must repay loans in full regardless of whether they complete college. But many students who take out a loan do not earn a degree (the dropout rate among college students is between 33 to 50 percent). The authors examine whether insurance against college-failure risk can be offered, taking into account moral hazard and adverse selection. To do so, they develop a model that accounts for college enrollment, dropout, and completion rates among new high school graduates in the US and use that model to study the feasibility and optimality of offering insurance ...
Briefing
Who Values Access to College?
A quantitative model of college enrollment suggests that the value of college access varies greatly across individuals. Forty percent place no value on the option to attend despite large public subsidies, while 25 percent would enroll even without the subsidies. In the model, redirecting public funds from those who attend college irrespective of subsidies to those who don’t attend even with subsidies both preserves college enrollment and improves overall outcomes. While these two groups are clearly visible only in the model, and not in the data, this analysis suggests that more-targeted ...
Working Paper
Insuring college failure risk
Participants in student loan programs must repay loans in full regardless of whether they complete college. But many students who take out a loan do not earn a degree (the dropout rate among college students is between 33 to 50 percent). The authors examine whether insurance against college-failure risk can be offered, taking into account moral hazard and adverse selection. To do so, they developed a model that accounts for college enrollment, dropout, and completion rates among new high school graduates in the US and use that model to study the feasibility and optimality of offering ...