Constrained after college: Student loans and early-career occupational choices

Jesse Rothstein and Cecilia Elena Rouse

Journal of Public Economics, 2011, vol. 95, issue 1, 149-163

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 investment 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.

Keywords: Student debt; Credit constraints; Career choice; Financial aid (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (157)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0047272710001337
Full text for ScienceDirect subscribers only

Related works:
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)
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:eee:pubeco:v:95:y:2011:i:1:p:149-163

DOI: 10.1016/j.jpubeco.2010.09.015

Access Statistics for this article

Journal of Public Economics is currently edited by R. Boadway and J. Poterba

More articles in Journal of Public Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().