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The Price of Borrowing for College: Student Loan Interest Rates, Educational Choices, and Career Tradeoffs

Author

Listed:
  • Guo, Naijia

    (The University of Hong Kong)

  • Zhong, Ling

    (Southwest University of Finance and Economics, Chengdu)

Abstract

Federal student loan interest rates affect college financing, education and job choices, and career outcomes. Using U.S. microdata, we exploit changes in federal loan rates over time and regional variation in expected loan reliance. Higher interest rates reduce student loan take-up and the amount borrowed without raising total interest payments, and students shift toward funding sources that do not require repayment. Students facing higher borrowing costs sort into higher-earning majors and occupations, increase labor supply, and move away from self-employment and small-firm jobs. Affected individuals earn more but report lower satisfaction with job independence and responsibility.

Suggested Citation

  • Guo, Naijia & Zhong, Ling, 2026. "The Price of Borrowing for College: Student Loan Interest Rates, Educational Choices, and Career Tradeoffs," IZA Discussion Papers 18768, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp18768
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    Keywords

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    JEL classification:

    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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