An Examination of the Effects of Undergraduate Debt on Postbaccalaureate Decision-Making

Abstract

High payments and default on undergraduate debt have consequences. These high payments and defaults are national concerns if aversion to those consequences deters students from making optimal postbaccalaureate decisions regarding postbaccalaureate educational aspirations, enrollment, and early-career occupation. This work proposes to expand our general understanding of how undergraduate loans influence and potentially constrain the postbaccalaureate decision-making for students.

I utilize a mixed methods approach to investigate the extent to which undergraduate student loan debt influences postbaccalaureate educational aspirations, enrollment and early-career occupational choices. For the quantitative analysis, I use instrumental variables to estimate the causal effect of undergraduate loans using two compiled datasets of either Beginning Postsecondary Students: 04/09 or Baccalaureate and Beyond: 08/12 merged with the Integrated Postsecondary Education Data Systems and the Barron’s Admissions Competitiveness Index. For the qualitative analysis, I conduct multiple semi-structured interviews with six graduating underrepresented students at a Historically Black College or University as they enter repayment on undergraduate loans.

The quantitative results support the conceptual framework as a theory of behavior for students’ postbaccalaureate decision-making. I find that $10,000 increase in total undergraduate debt: does not appear to induce a change in students’ aspirations; decreases the likelihood of students enrolling in graduate school by 3-4%; and, increases the average annual salary of students by $1,550 in 2009 and $3,410 in 2012. A $10,000 increase in federal undergraduate debt: does not appear to induce a change in students’ aspirations; decreased the likelihood of students enrolling in graduate school by 5%; and, increases the average annual salary of students by $2,100 in 2009 and $4,620 in 2012. The qualitative results, while preliminary in nature due to the small sample size, suggest that following students past graduation is key as the students reported confidence or emotional state may change as repayment draws closer. Practical and policy implications for these findings are discussed.