Constrained after college: Student loans and early-career occupational choices

 
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As of 2011, the average loan debt among all U.S. college graduates was $23,300; the median was $12,800.  The overall student loan burden stood at $870 billion, exceeding Americans’ aggregate credit card balance ($693 billion) and total outstanding auto loans ($730 billion). Do financial obligations significantly limit a student’s life choices or, as other research suggests, are these educational expenses trivial when measured against enhanced professional earnings over time?

A 2011 study from the University of California-Berkeley and Princeton University, “Constrained After College: Student Loans and Early-Career Occupational Choices,” estimates the effect of student debt on early career choices made by recent graduates attending a highly-selective university that eliminated student loans entirely in favor of grants in the early 2000s. Published in the Journal of Public Economics, the study compared the professional choices of three groups of students: students who received both loans and grants; student who received only grants; and students who received no financial aid.

Key study findings include:

  • “Debt leads graduates to choose higher-salary jobs. Much or all of this effect is across occupations, as debt appears to reduce the probability that students choose low-paid ‘public interest’ jobs. Debt effects are most notable on the propensity to work in the education industry.”
  • Students who received financial aid packages free of loan obligations shifted their focus from industries with higher salaries to those that offered lower salaries. (Over the study period, “there was little change in the industry composition of jobs taken by students not on aid.”)
  • Graduates with higher debt burdens chose jobs with higher salaries; for every additional $10,000 in loan obligations, a student’s post-graduation salary rose by $2,000 annually and “reduced the likelihood that an individual will take a job in nonprofits, government or education by about 5 or 6 percentage points.”
  • Debt had almost no effect on a student’s academic performance or his or her ability to secure a job after graduation.

The authors note that the premise that educational debt should have at most a small effect on career choices is not borne out by their data. It is also not clear from this study if financial aid candidates might benefit more over time from attending a less elite — and more affordable — school.

A related study in Education Economics, while based on older data, also concludes that loan burdens influence subsequent life and career choices.

Tags: youth, employment, student loans, higher education

Last updated: June 25, 2012

 

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Citation: Rothstein, Jesse; Rouse, Cecilia Elena. “Constrained After College: Student Loans and Early-Career Occupational Choices,” Journal of Public Economics, February 2011, Vol. 95, Issues 1–2, 149–163. doi: 10.1016/j.jpubeco.2010.09.015.