Early-life financial behavior, intergenerational transfers, and employment: Insights from a nudge in student loan policy

This paper investigates the effect of student loans on students’ spending, earnings, and parental transfers. For causal identification, we exploit a nudge for the take-up of student loans. We estimate an instrumental variable (IV) model with a first-stage Difference-in-Differences design. We find that a decline in the default student loan reduced monthly student borrowing. A one-euro decline in student loans reduced students’ expenditures by 36 cents, but also led to a substantial increase of parental financial contributions (55 cents) and in-kind transfers (13 cents). Student loans substantially affect consumption behavior. Labor earnings are affected among vocational students, but not among university students.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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