Student Loan Debt and Risk Preferences on the Job Market

Rising concerns about the size and scope of student loan debt balances in the United States have generated interest in studying how these debt balances impact borrowers' economic decision-making after leaving school. I test how student loan debt holdings impact the ways that individuals weigh risk-related tradeoffs on the job market. I aim to determine whether the need to service fixed monthly student loan payments through a loan servicer might induce borrowers to select jobs that are more stable in terms of risk factors like layoff risk and pay variability, and whether this effect increases with the size of one’s total student loan debt holdings and their required monthly payment. I test this using a novel survey experiment on U.S. 4-year degree recipients ages 22-30. In my survey experiment, I first test respondents’ baseline risk preferences in job choice using their actual student debt levels and actual monthly required payment (if any) by providing them with menus of job choices that vary in risk and pay, and by using these job choice menu questions to iteratively narrow down their willingness to pay to avoid risk. I then induce experimental variation by providing the respondent with new hypothetical scenarios in which their student loan debt level is artificially higher (i.e., through unexpected tuition hikes while they were enrolled), where the shock size varies across participants, to test whether this changes their job preferences. I also study the likelihood with which they anticipate experiencing major life choices involving risk (buying a house, pursuing further education, investing, etc.) before and after the shock to debt level. Initial pilot results suggest that as I increase the size of the shock to total debt level by \$1,000, respondents are willing to pay \$18.50/month more to avoid a fixed increase in job layoff risk ($p=0.023$) and \$10.66/month more to avoid a fixed increase in pay variation ($p=0.003$). Respondents also report significantly lower likelihoods of making life choices that require them to bear risk when their debt level is artificially increased.