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Title: Financial Frictions and Human Capital Investments

Citation Type: Miscellaneous

Publication Year: 2022

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Abstract: How do financial frictions affect the type of human capital investments that students make in college? To study this question, I build a novel dataset covering more than 700,000 U.S. students, merging commencement records with address histories, credit bureau records, and professional resumes. I document that students trade off initial earnings against lifetime earnings when choosing college majors and that students from low-income families are more likely to choose majors associated with higher initial earnings but lower lifetime earnings. I provide causal estimates of how student debt affects this trade-off using the staggered implementation of universal no-loan policies across 22 universities from 2001 to 2019. I find that students who are required to take on more student loans to finance their education choose majors with higher initial earnings but lower lifetime earnings. Furthermore, student debt affects students differentially depending on their family backgrounds: Students from low-income families display greater sensitivity to changes in student debt. Finally, I show that differences in student debt amounts lead to different job profiles and earnings later in life. Combined, these findings highlight the role of financial frictions in human capital investments and subsequent labor market trajectories.

Url: https://www.dropbox.com/s/pvnzzng98f0dvqg/Hampole_2022.pdf?dl=0

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Authors: Hampole, Menaka V

Publisher: Northwestern University

Data Collections: IPUMS USA

Topics: Education, Labor Force and Occupational Structure

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