The Ripple Effects of Rising Loan Costs: Major and Occupation Choices, Earnings, and Job Satisfaction

This paper analyzes the impact of federal loan interest rates on college financing, education, and labor market outcomes using micro-data from the National Survey of College Graduates. Students from regions with a higher share of private university enrollment face higher tuition costs and rely more heavily on student loans, making them more responsive to changes in federal loan interest rates. We employ a continuous difference-in-differences framework that exploits variation in federal loan interest rates over time and across regions by private university enrollment share. Higher interest rates shift college financing away from student borrowing and toward family resources. They also raise college financing costs, steering students’ educational and career trajectories toward pecuniary returns at the expense of job satisfaction. Individuals exposed to higher interest rates increase their labor supply, reflected in lower unemployment and longer working hours. They also treat salary as a more important job attribute and sort into job types with higher monetary returns. In particular, they are less likely to be self-employed or to work in small firms, and more likely to hold positions closely aligned with their field of study. These shifts in education and career choices translate into higher earnings, at the cost of lower satisfaction with job independence.