Constrained after College: Student Loans and Early Career Occupational Choices

Goldman School of Public Policy Working Paper No. GSPP10-012

43 Pages Posted: 22 Nov 2010

See all articles by Jesse Rothstein

Jesse Rothstein

University of California, Berkeley, The Richard & Rhoda Goldman School of Public Policy; University of California, Berkeley, College of Letters & Science, Department of Economics; National Bureau of Economic Research (NBER)

Cecilia E. Rouse

Princeton University - Industrial Relations Section; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2010

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.

Suggested Citation

Rothstein, Jesse and Rouse, Cecilia E., Constrained after College: Student Loans and Early Career Occupational Choices (September 2010). Goldman School of Public Policy Working Paper No. GSPP10-012. Available at SSRN: https://ssrn.com/abstract=1713398 or http://dx.doi.org/10.2139/ssrn.1713398

Jesse Rothstein (Contact Author)

University of California, Berkeley, The Richard & Rhoda Goldman School of Public Policy ( email )

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HOME PAGE: http://eml.berkeley.edu/~jrothst

University of California, Berkeley, College of Letters & Science, Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Cecilia E. Rouse

Princeton University - Industrial Relations Section ( email )

Princeton, NJ 08544-2098
United States
609-258-4042 (Phone)
609-258-2907 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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