Student Loans and College Majors: The Role of Repayment Plan Structure

Abstract

This paper highlights the role loan repayment plan structure has in students’ human capital investments. I link academic records from a major public university to credit records to assess the empirical evidence for shifting major selection. After an expansion in Income Driven Repayment (IDR) options increased generosity and use, borrowers are more likely to select majors with worse initial labor market outcomes but higher wage growth, consistent with theoretical predictions. These results are robust to specifications that account for nonrandom selection into borrowing status as well as compositional shifts in borrowers over time. This sheds light on how changes in student loan repayment plans affected major selection and, given the new SAVE plan, how students may respond in future human capital investments.