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.
Commentary:
As something of a mathematical Casca (which discloses my English Literature degree), I cannot really comment on or even understand much of the statistical analysis here as "it was Greek to me". Here''s a short one (which hopefully survives into Google group and Listserv emails):
2019
Yi,c = ∑ γcLoanP cti,c + ϕc + βcXi,c + εi,c
c=2009
My Sigma ignorance aside, This research does indicate that IDR plans "offer insurance against low monetary returns and offer the flexibility to trade off these initially low income realizations with higher income growth." This does not, however, support the recurring rants in the media regarding the humanities, especially the Gender Studies Straw-person, that student loan relief encourages pursuit of degrees that have perpetually low income and low income growth.
To read a copy of the transcript, please see:
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