Study: Undergraduates With High Debt Less Likely to Enroll in Graduate School

By Allie Bidwell, Communications Staff

Students who finish their undergraduate education with higher debt – especially those from low-income families – are noticeably less likely to enroll in graduate school, according to a new study from researchers at Boston College and New York University.

The study, “Debt and Human Capital: Evidence from Student Loans,” found that $4,000 in higher debt caused a 2 percentage point reduction in the probability that students would enroll in graduate school in the following eight years. While the causal effect is more noticeable for students from lower income families, the authors wrote that the effect was weaker for students who received financial literacy education in high school.

Additionally, the authors found that students whose tuition increases earlier in their college career graduate with significantly more debt than those who face tuition increases in later years. Students who faced a $4,000 tuition increase after their first year increased their debt by $600 more than students who faced that tuition increase in their sixth year.

“The results highlight an important trade off associated with debt-financing of human capital, and inform the debate  on the effects of the large and increasing stock of student debt in the US,” the authors wrote.

The data used to inform the study encompass more than 90 percent of all types of student debt in the country, across all institution types, sectors, and degrees between 1992 and 2015.

Other factors, such as gender and children, appeared to have an impact on the probability of attending graduate school. The authors found that women were 1 percentage point more likely to attend than men, and students who had children were 2 percentage points less likely to attend.

There were also two “distinct but not mutually exclusive” ways in which debt could reduce a student’s likelihood of attending graduate school. First, students with higher debt are more likely to have tighter credit constraints, particularly if they took out private student loans. Higher debt also brings an increased risk of default, the authors wrote. Second, even if pursuing a graduate degree could help an individual in the long-term (such as by increasing lifetime earnings), he or she might be dissuaded from attending graduate school because of current debt, and the likelihood of incurring more debt in the short-term.

The authors wrote that the results of their study suggest “policymakers and academics should recognize that the choice of financing of investments in human capital with debt is not innocuous, and may reduce the total level of human capital relative to alternatives that do not tighten credit constraints.” They added that the results “speak to an unintended consequence of the fast and large increase in student debt in the U.S. during the past 10 years.”

“While this increase in debt may have important future consumption effects, the effects that we document on investments in education may have first order implications in reducing the future supply of highly educated individuals to areas such as research and development and health,” the authors wrote.


Publication Date: 1/30/2017

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