Effects of college educational debt on graduate school attendance and early career and lifestyle choices

Abstract

This paper examines how college educational debt affects various post-baccalaureate decisions of bachelor’s degree recipients. I employ the Baccalaureate and Beyond 93/97 survey data. Using college-aid policies as instrumental variables to correct for the endogeneity of student college debt level, I find that for public college graduates, college debt has a negative and significant effect on graduate school attendance. This negative effect is concentrated on more costly programs associated with doctoral, MBA, and first professional (FP) degrees, and debt has no effect on the choice of a master’s program. For private college students, debt does not have an effect on the overall graduate school attendance, but this absence of effect conceals the differential effects of debt on different graduate programs – debt has a positive and significant effect on the choice of an MBA or an FP program, and a zero effect on other programs. For both public and private college students, debt has no effects on early career choices such as salary, sector of occupation, marital status, and homeownership.