Student Debt and the Life Cycle

Does student debt affect life-cycle decisions? There is growing concern in the press and policy circles that student debt burdens delay the choice to buy a home, to start a family, or to take the most desirable career path. We revisit this debate using income tax return and borrowing data from the population of student borrowers in the US. We estimate the causal effect of student debt burdens on homeownership rates, household formation, and occupational choice using two complementary research designs. The first design exploits discontinuities and shifts in Pell grant eligibility to generate exogenous differences in the level of student loans across comparable households. The second design is a difference-in-differences design based on the introduction of grant-for-loan exchange programs at several colleges. We combine our results with a life-cycle model of human capital accumulation to estimate the return to public investments in post-secondary education.