Universal education systems are often said to promote intergenerational mobility. However, educational mobility in Denmark, which offers tax-financed post-secondary education and generous student aid, is still surprisingly low. To rationalize this, we develop a structural life cycle model where education choice is endogenous and depends on preferences, graduation probabilities, and parental transfers, which vary with child ability and parental education.

After estimating the model on Danish register data, we first disentangle the drivers of educational mobility. Subsequently, we conduct counterfactual policy experiments to evaluate the scope for education policy to improve mobility.

We find that increasing current subsidies has only small positive effects on educational attainment and mobility, while relaxing the student debt limit has virtually no effect. This is so as the persistent transmission of skills and preferences dominate immediate pecuniary incentives.