Template-Type: ReDIF-Paper 1.0
Title: Debt, Human Capital, and the Allocation of Talent
Author-Name: Titan Alon
Author-Email: talon@ucsd.edu
Author-Name: Natalie Cox
Author-Email: nmcox@princeton.edu
Author-Name: Minki Kim
Author-Email: minki.kim@uni-mannheim.de

Classification-JEL: E0, E2
Keywords: Student debt, occupation choice, wage profiles, credit constraints, misallocation
of talent, college, higher education, labor productivity.

Abstract: In the presence of credit frictions, student debt may prevent graduates from realizing
the full returns to a college education by distorting their occupation choice and
subsequent early career investments in human capital. This paper quantifies the aggregate
size of these labor market distortions by computing the effect of large-scale
student debt forgiveness policies. The model’s predictions are disciplined by new
empirical evidence showing that more student debt leads to higher initial earnings,
but lower returns-to-experience. The quantitative results suggest that rising student
debt is having a substantial adverse effect on aggregate labor productivity and the
occupational composition of employment.

Note: 
Length: 61
Creation-Date: 2025-01
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp635
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2025_635