NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Students in Distress: Labor Market Shocks, Student Loan Default, and Federal Insurance Programs

Holger M. Mueller, Constantine Yannelis

NBER Working Paper No. 23284
Issued in March 2017
NBER Program(s):Economics of Education, Labor Studies

The collapse in home prices during the Great Recession triggered a sharp drop in consumer demand by households, leading to massive employment losses. This paper examines the implications of these labor market shocks for the dramatic rise in student loan defaults, which originated during this time period. Linking administrative student loan data at the individual borrower level to de-identified tax records and exploiting Zip code level variation in home price changes, we show that the drop in home prices during the Great Recession accounts for approximately 24 to 32 percent of the increase in student loan defaults. Consistent with a labor market channel, we find a strong relationship between home prices, employment losses, and student loan defaults at the individual borrower level, which is concentrated among low income jobs. Comparing the default responses of home owners and renters, we find no evidence of a direct liquidity effect of home prices on student loan defaults. Lastly, we show that the Income Based Repayment (IBR) program introduced by the federal government in the wake of the Great Recession reduced both student loan defaults and their sensitivity to home price fluctuations, thus providing student loan borrowers with valuable insurance against adverse income shocks.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w23284

Users who downloaded this paper also downloaded* these:
Acemoglu and Restrepo w23285 Robots and Jobs: Evidence from US Labor Markets
Chou, Looney, and Watson w23118 Measuring Loan Outcomes at Postsecondary Institutions: Cohort Repayment Rates as an Indicator of Student Success and Institutional Accountability
Altonji and Zimmerman w23029 The Costs of and Net Returns to College Major
Acevedo, Cruces, Gertler, and Martinez w23264 Living Up to Expectations: How Job Training Made Women Better Off and Men Worse Off
Dale and Krueger w17159 Estimating the Return to College Selectivity over the Career Using Administrative Earnings Data
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us