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graph to show the According to a study by the Indiana Public Interest Research Group, students can obtain federally subsidized Stafford loans at below-market rates. Such loans are provided on the basis of "need," using family income as the standard. The College Cost Reduction and Access Act of 2007 reduced the rate on subsidized Stafford loans yearly to 3.4 percent in 2012. Unsubsidized loans carry a rate of 6.8%.

a. Use a effect on the optimal quantity of schooling when student-loan rates are decreased. Hint: think of two different groups' rates of return to education-high ability and low ability.

b. describe the effect of having the two-tiered interest rate structure (where students from low-income families pay less) in terms of the screening/signaling model. No graph required.

Microeconomics, Economics

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