Job Search under Debt: Aggregate Implications of Student Loans
Posted: 31 May 2017 Last revised: 19 Nov 2018
Date Written: April 8, 2018
I develop and estimate a dynamic equilibrium model of schooling, borrowing, and job search. In my model, risk-averse agents under debt tend to search less and end up with lower-paid jobs. I use the model to quantify the aggregate implications of student loans. Estimating 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 job search risks. In general equilibrium, IBR also increases social welfare through more college attendance and more job postings.
Keywords: student loan debt, search frictions, reservation wage, risk and liquidity, income-based repayment plan.
JEL Classification: D61, D86, I22, I28, J31, J64
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