Note. This table reports multinomial logit estimates for the effect of tuition on major choice. The omitted category is having no degree (thus, no major) before age 23. Tuition is the average in-state tuition at public 4-year colleges from the four school years following the individuals’ eighteenth birthday and is expressed in thousands of 2014 dollars. The sample is all individuals from a nationally representative cohort of 2331-year-old individuals with credit records in 2004 after applying the filters described in sec. III who have attended at least a public 4-year college before age 23. Standard errors are clustered at the home state level.
To eliminate bias from any state-level shocks that could affect both the homeownership rate and public school tuition, we split the sample into a treatment and a control group. The treatment group is the set of individuals who attended a public 4-year university at any point before age 23, while the control group is all others. Treated individuals are directly exposed to the tuition changes, and their debt balances reflect this. Control group individuals are not directly affected by the tuition at schools they did not attend, and so they absorb any variation in economic conditions at the state level that may be driving tuition rates. We show that the instrument passes several placebo tests; for example, while instrumented student loan debt has a substantial negative effect on the homeownership rate of the treatment group, no such relationship between public school tuition and homeownership is apparent for the control group. The estimated effect of student loan debt on homeownership is also quite stable to the inclusion of various sets of controls, at both the individual and the market level (including state-by-year fixed effects).
II. Background and Mechanism
While our discussion thus far suggests that the effect of student loan debt on homeownership attenuates over time due to student loan debt repayment and rising incomes, there may be countervailing effects. In particular, the propensity for homeownership is generally relatively low among those newly out of school and increases with age. Also, individuals may exhibit habit formation in their housing tenure choice. A marginal home buyer who is induced into renting by her debts may become accustomed to renting, in which case the apparent effect of student loan debt on homeownership could persist for many years.
The key explanatory variable, student loan balance, is measured as the total amount of federal student loans disbursed to an individual before they turned 23. We use disbursement of federal student loans from the NSLDS, rather than student loan balances from credit bureau data, for two reasons. First, balances in the credit bureau data are reported roughly biennially, so we do not observe student loan balances at the same ages for all individuals. Second, student loan balances from the credit bureau data are available to us for the first time in ple were already 23 years old. A potential drawback of our approach is that the measure of total federal loans disbursed does not include accrued interest, repaid principal, or private student loans.
Hence, the number of marginal home buyers may peak many years after school exit, suggesting that the effect of student loan debt might be increasing as the debtor ages
| Variable | Obs | Mean | SD | Min | Max |
|---|---|---|---|---|---|
| Homeownership rate: | |||||
| Own at 22 | 33,435 | .068 | .251 | 0 | 1 |
| Own at 23 | 33,435 | .100 | .301 | 0 | 1 |
| Own at 24 | 33,435 | .143 | .351 | 0 | 1 |
| Own at 25 | 33,435 | .195 | .396 | 0 | 1 |
| Own at 26 | 33,435 | .243 | .429 | 0 | 1 |
| Own at 27 | 33,435 | .289 | .453 | 0 | 1 |
| Own at 28 | 33,435 | .332 | .471 | 0 | 1 |
| Own at 29 | 33,435 | .369 | .482 | 0 | 1 |
| Own at 30 | 33,435 | .401 | .490 | 0 | 1 |
| Own at 31 | 33,435 | .424 | .494 | 0 | 1 |
| Own at 32 | 33,435 | .445 | .497 | 0 | 1 |
| Student loan debt measures: | |||||
| Student loans disbursed (in $1,000) | 33,435 | 4.990 | 0 | ||
| Student loans disbursed (in $1,000), conditional on debt >0 | 9,720 | .002 | |||
| Tuition (in $1,000) | 33,435 | 6.020 | 7.506 | ||
| School sector controls: | |||||
| Ever public 4 year | 33,435 | .262 | .440 | 0 | 1 |
| Ever public 2 year | 33,435 | .248 | .432 | 0 | 1 |
| Ever private 4 year not for profit | 33,435 | .116 | .320 | 0 | 1 |
| Ever private 2 year not for profit | 33,435 | .008 | .087 | 0 | 1 |
| Ever private for profit | 33,435 | .047 | .211 | 0 | 1 |
| Degree and Pell Grant controls: | |||||
| No college | 33,435 | .458 | .498 | 0 | 1 |
| Associate’s/certificate | 33,435 | .030 | .171 | 0 | 1 |
| Bachelor’s | 33,435 | .113 | .317 | 0 | 1 |
| Master’s or more | 33,435 | .001 | .039 | 0 | 1 |
| Degree of unknown type | 33,435 | .008 | .088 | 0 | 1 |
| Ever Pell | 33,435 | .206 | .404 | 0 | 1 |
| Cohort: | |||||
| 199091 | 33,435 | .045 | .207 | 0 | 1 |
| 199192 | 33,435 | .115 | .319 | 0 | 1 |
| 199293 | 33,435 | .113 | .317 | 0 | 1 |
| 199394 | 33,435 | .109 | .312 | 0 | 1 |
| 199495 | 33,435 | .113 | .316 | 0 | 1 |
| 199596 | 33,435 | .113 | .317 | 0 | 1 |
| 199697 | 33,435 | .113 | .316 | 0 | 1 |
| 199798 | 33,435 | .118 | .323 | 0 | 1 |
| 199899 | 33,435 | .108 | .310 | 0 | 1 |
| 19992000 | 33,435 | .054 | .225 | 0 | 1 |
| Yearly state controls: | |||||
| Average weekly wages (in $1,000, home state) | 33,435 | 1.026 | .170 | .783 | 1.792 |
| Unemployment rate (home state) | 33,435 | 5.015 | 1.135 | 2.300 | 8.770 |
| House price index (home state) | 33,435 | ||||
| Additional Outcomes: | |||||
| Mortgage amount (in $1,000) | 10,475 | .148 | 2, | ||
| Ever nonprime | 33,435 | .739 | .439 | 0 | 1 |
| Ever subprime | 33,435 | .610 | .488 | 0 | 1 |
| Ever delinquent on student loans | 33,435 | .149 | .356 | 0 | 1 |
| Ever delinquent on credit card debts or auto loans | 33,435 | .203 | .402 | 0 | 1 |
Individuals with differing amounts of student loan debt may also differ in other important ways. Notably, they may have different levels of education, which is itself highly correlated with homeownership (possibly through an effect on income). Figure 1C restricts the sample to individuals who attained a bachelor’s degree before age 23. Within this group, those without student loan debt always have a higher homeownership rate than borrowersparing the bottom two panels, students who borrowed more than $15,000 had the highest homeownership rate among the general college-going population after age 27 but have the lowest rate among the subset with a bachelor’s degree at all ages. Bachelor’s degree recipients with no student loan debt have the highest homeownership rate across the range of ages. As such, simple correlations clearly do not capture the whole picture.