Job Loss, Credit Card Loans, and the College-persistence Decision of US Working Students 
Working college students represent 57 percent of the 18- to 24-year-old US undergraduate population. On average, compared with their non-working peers, they have lower family income and receive less parental support, and more than half depend on their own earned income to pay for their college education. Furthermore, most working students have no access to commercial loans but hold one or more credit cards, and in many cases, they carry a credit card balance over months. This paper studies the effect of job loss on the college-persistence decision of US 18- to 24-year-old working college students and whether access to credit through credit card loans buffers this liquidity effect of job loss.
Key Findings
- Job loss had minimal effect on working students’ college-persistence decision from 2000 to 2009, but it was associated with an 18 percentage point increase in the college dropout rate from 2009 to 2019.
- This increase in the liquidity effect of job loss on college persistence followed enactment of the Credit Card Accountability Responsibility and Disclosure (CARD) Act, which, in addition to other provisions, imposed restrictions on credit extension to individuals younger than 21 or older but enrolled in college.
- The decline in the college-age population’s access to credit card loans following the 2008–2009 school year accounts for 55 to 96 percent of the increase in the liquidity effect of job loss on working college students from the pre–CARD Act period to the post–CARD Act period.
Implications
This report’s findings suggest that employment stability plays a pivotal role in the retention of young working students and that access to credit through credit card loans offers essential liquidity for students to persist in college after experiencing unanticipated job loss. An important caveat is that while credit card loans improve college persistence in the short run for unemployed college students, a large credit card debt leads to other adverse consequences and is unlikely the optimal solution to students’ liquidity constraints. Instead, the significance of credit card loans in the personal finance of working students reflects a dearth of alternative income assistance to compensate for short-term earnings loss. Extending timely unemployment assistance to college students through either unemployment insurance or student financial aid programs could potentially insure these students against unforeseen job-loss risks and yield retention benefits.
Abstract
This study assesses the impact of involuntary job loss on college persistence by leveraging different job-loss timings relative to a student’s college enrollment decision. We find that job loss increases the probability that a working college student leaves college before attaining a degree, but access to short-term credit through credit card loans buffers this liquidity effect. By restricting credit supply to college students, the CARD Act of 2009 has inadvertently inhibited the ability of liquidity-constrained students to remain in college when their earnings unexpectedly fall, resulting in a stronger liquidity effect of job loss on college persistence over the last decade.