Human Capital Investment After the Storm
64 Pages Posted: 19 May 2020 Last revised: 1 Sep 2020
Date Written: May 4, 2020
We provide a novel test for the impact of wealth-destroying natural disasters on college decisions using Hurricane Harvey (Aug-Sep 2017). First, we compare enrollment and graduation outcomes at Texas public universities and colleges according to their student share from disaster-affected counties. We find a 9.2% decline in enrollment and a 3.5 percentage point (12.5%) drop in graduation rates at the most exposed relative to the least exposed schools. Risk preferences appear to shift after flooding. Enrollment in majors with high downside risk in earnings, like humanities and general studies, decline in favor of lower downside risk majors, like business and engineering. Next, we turn to student loan data on individuals from Houston. If human capital investment is held constant, a loss in home equity should lead to more student loan financing. Instead, we find college-age adults from flooded areas are 2.5 percentage points (5.7%) less likely to have student loans than are counterparts from non-flooded areas. Flooded mortgage-holders with less initial equity in their homes, particularly those located outside of the floodplain, also see relative declines in student loan borrowing – which is suggestive of liquidity effects. We conclude that Hurricane Harvey lead to delayed and/or forgone education, highlighting a potential long-term impact of natural disasters that may require policy solutions beyond existing disaster assistance programs.
Keywords: college, enrollment, completion, education, student debt, constraint, natural disaster, FEMA
JEL Classification: Q54, H84, D0, D1, R2, Q54; H84; D0; D1; R2; D14, H52, H81, J24, I23
Suggested Citation: Suggested Citation