ERIC Number: ED501951
Record Type: Non-Journal
Publication Date: 2007-May
Abstractor: As Provided
Constrained after College: Student Loans and Early Career Occupational Choices. NBER Working Paper No. 13117
Rothstein, Jesse; Rouse, Cecilia Elena
National Bureau of Economic Research
In the early 2000s, a highly selective university introduced a "no-loans" policy under which the loan component of financial aid awards was replaced with grants. We use this natural experiment to identify the causal effect of student debt on employment outcomes. In the standard life-cycle model, young people make optimal educational investment decisions if they are able to finance these investments by borrowing against future earnings; the presence of debt has only income effects on future decisions. We find that debt causes graduates to choose substantially higher-salary jobs and reduces the probability that students choose low-paid "public interest" jobs. We also find some evidence that debt affects students' academic decisions during college. Our estimates suggest that recent college graduates are not life-cycle agents. Two potential explanations are that young workers are credit constrained or that they are averse to holding debt. We find suggestive evidence that debt reduces students' donations to the institution in the years after they graduate and increases the likelihood that a graduate will default on a pledge made during her senior year; we argue this result is more likely consistent with credit constraints than with debt aversion.
Descriptors: Investment, Debt (Financial), College Graduates, Student Financial Aid, Career Choice, Student Loan Programs, Higher Education, Loan Repayment, Income Contingent Loans
National Bureau of Economic Research. 1050 Massachusetts Avenue, Cambridge, MA 02138-5398. Tel: 617-588-0343; Web site: http://www.nber.org/cgi-bin/get_bars.pl?bar=pub
Publication Type: Opinion Papers
Education Level: Higher Education
Authoring Institution: National Bureau of Economic Research, Cambridge, MA.