Constrained After College: Student Loans and Early Career Occupational Choices

Jesse Rothstein and Cecilia Elena Rouse

No 13117, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: D91 H52 I20 J24 (search for similar items in EconPapers)
Date: 2007-05
New Economics Papers: this item is included in nep-edu, nep-hrm, nep-lab, nep-pbe and nep-sog
Note: CH ED LS
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

Published as Rothstein, Jesse & Rouse, Cecilia Elena, 2011. "Constrained after college: Student loans and early-career occupational choices," Journal of Public Economics, Elsevier, vol. 95(1), pages 149-163.
Published as Rothstein, Jesse & Rouse, Cecilia Elena, 2011. "Constrained after college: Student loans and early-career occupational choices," Journal of Public Economics, Elsevier, vol. 95(1-2), pages 149-163, February.

Downloads: (external link)
http://www.nber.org/papers/w13117.pdf (application/pdf)

Related works:
Journal Article: Constrained after college: Student loans and early-career occupational choices (2011)
Journal Article: Constrained after college: Student loans and early-career occupational choices (2011)
Working Paper: Constrained After College: Student Loans and Early Career Occupational Choices (2007)
Working Paper: Constrained After College: Student Loans and Early Career Occupational Choices (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:13117

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w13117

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().