Recipients of PSC Small Grant Awards
The Effect of Student Loans on Academic and Labor Market Behavior
My research examines the effect of student loans, and in particular the structure of repayment plans, on borrower’s decisions while in school and as they enter the labor market. The role of student loans in American society has been well documented in the media and in academic literature, which has long examined how borrowing affects attendance, completion, labor market activities, and other aspects of life from home purchase to family formation. However, relatively little is known about how repayment plans affect these decisions, despite the fact that it is the structure of repayment that directly affects consumers’ budgets and that the United States has recently enacted a series of policy changes to make Income-Driven Repayment plans, where monthly repayment amounts are a function of monthly income rather than loan principal, more attractive and easily accessible to borrowers. Part of the reason for the dearth of research into the effect of repayment plans on borrower behavior is due to lack of data. There is no publicly available dataset that follows up on behavior frequently enough to plausibly identify the effect of the newly available income-driven repayment plans on borrower behavior. However, using administrative data linked to borrowers’ credit bureau records would allow us to examine carefully how the introduction of such plans changed the effective choice set for borrowers and thus their ultimate behavior. My research proposes to do just this: using rich academic data merged to credit bureau records that record borrowing behavior for students before and after such policy changes, I hope to identify the effect on borrowers’ decisions to remain in school, their performance in coursework, their choices of major, and their ultimate labor market decisions post-graduation. Such work would allow us to better understand how student loans, with particular attention paid to the structure of such contracts, alter the mix of college graduates, specializations, and occupations in our economy. I believe that such knowledge is crucial in effective policymaking.