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Job Search under Debt: Aggregate Implications of Student Loans

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  • Ji, Yan
Abstract
A dynamic equilibrium model of schooling, borrowing, and job search is developed to quantify the aggregate implications of student loans. In my model, risk-averse agents under debt tend to search less and end up with lower-paid jobs. Calibrating the model using micro data, I show that student loans have significant effects on borrowers’ job search decisions under the fixed repayment plan. The income-based repayment plan (IBR) largely alleviates the burden of debt repayment by insuring labor market outcomes, allowing borrowers to conduct a more adequate job search. In general equilibrium, IBR also increases social welfare by encouraging college attendance.

Suggested Citation

  • Ji, Yan, 2021. "Job Search under Debt: Aggregate Implications of Student Loans," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 741-759.
    • Handle: RePEc:eee:moneco:v:117:y:2021:i:c:p:741-759
    DOI: 10.1016/j.jmoneco.2020.05.002
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    2. Matsuda, Kazushige & Mazur, Karol, 2022. "College education and income contingent loans in equilibrium," Journal of Monetary Economics, Elsevier, vol. 132(C), pages 100-117.
    3. repec:fip:fedpwp:97987 is not listed on IDEAS
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    More about this item

    Keywords

    student loan debt; search friction; reservation wage; risk and liquidity; income-based repayment plan;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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