Financial Constraints at Graduation and Career Earnings Trajectories: Evidence from the NLSY97

Abstract

This thesis examines whether financial constraints at college graduation, including student debt, low parental wealth, and limited family income, drive graduates toward career paths that reduce lifetime earnings. Combining the NLSY97 with occupation-specific earnings growth profiles derived from the American Community Survey, I estimate the relationship between a composite financial constraint index and career outcomes over a fifteen-year time horizon after controlling for ability (AFQT), demographics, graduation year, and region fixed effects. A one standard deviation increase in the constraint index predicts 1.5 percentage points lower occupation-specific earnings growth (p = 0.002). Cumulative earnings are 6.9 percent lower fifteen years after graduation (p = 0.003), with the penalty growing over time. The AFQT x constraint interaction (p = 0.010) reveals the penalty is concentrated among high-ability graduates. Supplementary data from the Baccalaureate and Beyond Longitudinal Study broadly confirms the direction, timing, and approximate magnitude of the NLSY97 findings with different constraint measures and ability controls. The results indicate that the earnings consequences of financial constraints at graduation extend beyond repayment burden and negatively impact the constrained student’s early-to-middle career trajectory.