published in: Economic Journal, 2002, 112 (482), 705-734
This paper examines the family income—college enrollment relationship and the evidence on
credit constraints in post-secondary schooling. We distinguish short-run liquidity constraints
from the long-term factors that promote cognitive and noncognitive ability. Long-run factors
crystallized 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 in
a short-run sense. Evidence that IV estimates of the returns to schooling exceed OLS
estimates is sometimes claimed to support the existence of substantial credit constraints.
This argument is critically examined.
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