Job Search under Debt: Aggregate Implications of Student Loans

30 Pages Posted: 31 May 2017 Last revised: 2 Feb 2020

See all articles by Yan Ji

Yan Ji

Hong Kong University of Science & Technology (HKUST)

Date Written: February 1, 2020

Abstract

A dynamic equilibrium model of schooling, borrowing, and job search is developed to quantify the aggregate implications of student loans. In my model, risk-averse agents under debt tend to search less and end up with lower-paid jobs. Calibrating the model using micro data, I show that student loans have significant effects on borrowers' job search decisions under the fixed repayment plan. The income-based repayment plan (IBR) largely alleviates the burden of debt repayment by insuring labor market outcomes, allowing borrowers to conduct a more adequate job search. In general equilibrium, IBR also increases social welfare by encouraging college attendance.

Keywords: student loan debt, search frictions, reservation wage, risk and liquidity, income-based repayment plan.

JEL Classification: E2, E6, J3, J6.

Suggested Citation

Ji, Yan, Job Search under Debt: Aggregate Implications of Student Loans (February 1, 2020). Available at SSRN: https://ssrn.com/abstract=2976040 or http://dx.doi.org/10.2139/ssrn.2976040

Yan Ji (Contact Author)

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

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