Job Search under Debt: Aggregate Implications of Student Loans

Yan Ji

Journal of Monetary Economics, 2021, vol. 117, issue C, 741-759

Abstract: A dynamic equilibrium model of schooling, borrowing, and job search is developed to quantify the aggregate implications of student loans. In my model, risk-averse agents under debt tend to search less and end up with lower-paid jobs. Calibrating the model using micro data, I show that student loans have significant effects on borrowers’ job search decisions under the fixed repayment plan. The income-based repayment plan (IBR) largely alleviates the burden of debt repayment by insuring labor market outcomes, allowing borrowers to conduct a more adequate job search. In general equilibrium, IBR also increases social welfare by encouraging college attendance.

Keywords: student loan debt; search friction; reservation wage; risk and liquidity; income-based repayment plan (search for similar items in EconPapers)
JEL-codes: E2 E6 J3 J6 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:117:y:2021:i:c:p:741-759

DOI: 10.1016/j.jmoneco.2020.05.002

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