Constrained after college
Subtitle: student loans and early career occupational choices
By: Jesse Rothstein, Cecilia Elena Rouse.
Contributors: Rouse, Cecilia Elena.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 13117.; Working paper series (National Bureau of Economic Research) -- working paper no. 13117.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 37
Subjects: College graduates -- Employment -- Mathematical models; Student loans -- Mathematical models; Student aid -- Mathematical models
Description: 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.
Notes: "May 2007"

Includes bibliographical references (p. 36-37).

Also available in PDF from the NBER world wide web site (www.nber.org).