New Directions in Student Loans:
Intergenerational Equity

Introduction

The Ford Federal Direct Lending Program was designed to streamline the student loan process and reduce government costs by eliminating the subsidies now received by banks and guarantee agencies involved in the existing Federal Family Education Loan Program. The accompanying expansion of repayment options for students is intended to ease the burden of repayment and reduce the default problem. These changes, along with the recent increase in the ceiling on borrowing permitted under both the Stafford and PLUS loan programs and the introduction of unsubsidized Stafford loans may, however, have some unintended consequences. One area of concern which has received inadequate attention is how the loan program modifications will affect the shares of the burden of financing higher education borne by parents and by students.

This paper examines the inter-generational implications of recent changes in college loan programs. First, however, it provides background on the question of who should pay for college. Are there strong arguments for publicly enforced transfers from one generation to the next? Would a system of individual responsibility for financing higher education be optimal? Are there convincing economic arguments for significant parental participation in paying for college? The basic premise is that it is not possible to evaluate inter-generational effects of specific programs without an understanding of the philosophical, social and economic arguments for any particular division of the burden.

-###-

Text of Paper
Return to Financial Aid Evaluation Page