The Price of Borrowing for College: Student Loan Interest Rates, Educational Choices, and Career Tradeoffs

Naijia Guo and Ling Zhong ()
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Naijia Guo: The University of Hong Kong
Ling Zhong: Southwest University of Finance and Economics, Chengdu

No 18768, IZA Discussion Papers from IZA Network @ LISER

Abstract: Federal student loan interest rates affect college financing, education and job choices, and career outcomes. Using U.S. microdata, we exploit changes in federal loan rates over time and regional variation in expected loan reliance. Higher interest rates reduce student loan take-up and the amount borrowed without raising total interest payments, and students shift toward funding sources that do not require repayment. Students facing higher borrowing costs sort into higher-earning majors and occupations, increase labor supply, and move away from self-employment and small-firm jobs. Affected individuals earn more but report lower satisfaction with job independence and responsibility.

Keywords: federal student loans; interest rates; education outcomes; labor market outcomes; college financing costs (search for similar items in EconPapers)
JEL-codes: H81 I23 J24 (search for similar items in EconPapers)
Date: 2026-07
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