Luca Mazzone, University of Zurich (Job Market Seminar)

“Go Big or Buy a Home: Student Debt, Human Capital and Household Formation”

Abstract

Do financial constraints affect human capital accumulation of young workers? Does student debt play a role in household formation? Using supply side variations in college aid policies, we empirically analyze the impact of student debt on post baccalaureate decisions. We find that student debt induces a front loading of earnings, an anticipation in household formation and has a negative and persistent effect on graduate school attendance. We then introduce and estimate a life cycle model with endogenous human capital accumulation, career choice and housing. Our results highlight the importance of differences in net wealth at labor market entry as determinants of long run human and physical capital accumulation. We also show that housing is fundamental to understand dynamics in career and enrollment choices over the life cycle. Finally, we compare alternative policy proposals. A widespread adoption of an income based repayment plan and a more ambitious forgiveness plan have similar effects, as both increase human capital accumulation, earnings growth, and postpone entry into homeownership.

Contact person: Bertel Schjerning