Go Big or Buy a Home: The Impact of Student Debt on Career and Housing Choices

Abstract

Student debt decreases post-bachelor school enrollment and earnings growth but does not delay first-time home ownership. We introduce a life-cycle human capital model with heterogeneous wealth and financial frictions and show that high debt balances distort career choices because returns to further education depend on current income. Student debt impacts home ownership in two ways. First, it deters ownership via the traditional wealth channel. Second, it increases ownership by discouraging further education in favor of early labor market entry. Finally, we discuss the impact of student borrowing under different loan repayment schemes.

Keywords: Wealth Heterogeneity, Human Capital, Housing, Education, Career Choice