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.

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