Debt and Human Capital: Evidence from Student Loans

58 Pages Posted: 20 Jan 2017 Last revised: 1 May 2017

See all articles by Vyacheslav Fos

Vyacheslav Fos

Boston College - Department of Finance; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Andres Liberman

New York University (NYU) - Department of Finance

Constantine Yannelis

New York University Leonard N. Stern School of Business; University of Chicago Booth School of Business

Date Written: April 18, 2017

Abstract

This paper investigates the effect of debt on human capital. Using data from a random sample of the universe of federal student loan borrowers in the US, we document a negative relationship between the level of undergraduate student debt and graduate school enrollment. We identify off variation in student debt: 1) within school by cohort, and 2) induced by large tuition changes that affect differentially students within the same school across cohorts. We find that $4,000 in higher debt reduces the probability of enrolling in graduate school by 1.3-1.5 percentage points relative to a 12% mean. This effect is largely driven by credit constraints, declines with family income, and is attenuated for students who had compulsory personal finance training in high school. The results highlight an important trade off associated with debt-financing of human capital, and inform the debate on the effects of the large and increasing stock of student debt in the US.

Keywords: Student Debt, Human Capital, Postgraduate Education, Credit Constraints, Debt Overhang

JEL Classification: D14, H52, H81, J24, I23

Suggested Citation

Fos, Vyacheslav and Liberman, Andres and Yannelis, Constantine, Debt and Human Capital: Evidence from Student Loans (April 18, 2017). Available at SSRN: https://ssrn.com/abstract=2901631 or http://dx.doi.org/10.2139/ssrn.2901631

Vyacheslav Fos

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Andres Liberman (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

HOME PAGE: http://pages.stern.nyu.edu/~aliberma/

Constantine Yannelis

New York University Leonard N. Stern School of Business ( email )

Suite 9-160
New York, NY
United States

University of Chicago Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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