Nº31. Labor Market Returns to Student Loans
This paper studies the labor market returns to a state guaranteed loan (SGL) used to finance university degrees. Using administrative data from Chile and a regression discontinuity design, we show that nine years after high school graduation students who enrolled at a university thanks to the SGL attended it for 5 years, foregoing 3 years of vocational education and accumulating additional 14 thousand dollars in student debt. Strikingly, these
students do not benefit in terms wages, employment, type of contract, or type of employer. The low quality of institutions attended by loan users may account for these results.
In the last decade, several countries have seen a heated debate over the benefits and negative consequences of student loans. The high labor market returns for higher education together with the inability to borrow against future returns from education have encouraged the introduction of different student loan programs intended to democratize access to higher education. However the idea that student loans may impose a heavy burden on students and their families has raised. Indeed, the debate over a potential student debt crisis has motivated calls for a redesign of the student loan system in both developed and developing countries. Unfortunately, most of this discussion has focused only on anecdotal and correlational evidence.
Bucarey, A., Contreras, D., Muñoz, P. (2018). Labor Market Returns to Student Loans. Serie Documentos de Trabajo COES, Documento de trabajo N°31, pp. 1-46.