The Evidence on Credit Constraints in Post‐Secondary Schooling

Abstract

This paper examines the family income—college enrollment relationship and the evidence oncredit constraints in post-secondary schooling. We distinguish short-run liquidity constraintsfrom the long-term factors that promote cognitive and noncognitive ability. Long-run factorscrystallized in ability are the major determinants of the family income—schooling relationship,although there is some evidence that up to 8% of the U.S. population is credit constrained ina short-run sense. Evidence that IV estimates of the returns to schooling exceed OLSestimates is sometimes claimed to support the existence of substantial credit constraints.This argument is critically examined.