Association for Public Policy Analysis & Management

Higher student debt causes college students to take jobs with higher wages and lower job satisfaction. We arrive at this finding using repeated representative samples of college graduates and exploiting within college across-cohort variation in financial aid policies. To explain our finding we work within the search with asset accumulation framework of Lise (2013). This baseline model exhibits a negative relationship between debt and wages: fewer assets decreases reservation wages. When extended to accommodate nonpecuniary amenities the model matches our findings: higher debt tilts acceptance policies toward high wage, low satisfaction jobs. In a quantitative extension we identify the utility value of amenities through observed search behavior conditional on reported satisfaction and income, finding that high satisfaction jobs are valued at 6 percent of lifetime consumption relative to low satisfaction jobs. We find that a third of the welfare gains from a counterfactual income-based repayment policy derive from students accepting more satisfying jobs absent the pressure of large initial repayments. This trade-off is large enough that computing welfare using only wages leads to a mistaken inference that students prefer a fixed repayment policy.