Abstract: This paper examines the influence of parental wealth and income on their children’s college attendance and parents’ financial support for it and whether the latter affects the subsequent levels of indebtedness of parents and their children. We use data from the PSID, especially data in the 2013 Rosters and Transfers Module on the incidence and amounts of parents’ financial support for their children’s college. To instrument for the potential endogeneity of parental housing wealth and income on these decisions, we use changes in parents’ local housing and labor market conditions. We find that increases in both parents’ housing wealth and income increase the likelihood of their children attending college through the effect of parents’ financial support. This parental financing of college leads to parents carrying more debt, but their children having no greater student loan debt after graduation. We also find that parental financing of their child’s college education significantly increases the probability that the child actually graduates from college.
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