The Impact of Student Loan Debt on Small Business Formation
37 Pages Posted: 31 Mar 2014 Last revised: 21 Jul 2015
Date Written: July 15, 2015
This study examines the impact of growth in student debt on net small business formation. We find a significant and economically meaningful negative correlation between changes in student debt and net new businesses employing one to four employees, the firms most dependent on personal debt for financing. Based on our model, an increase of one standard deviation in student debt reduced the number of businesses with one to four employees by 14% between 2000 and 2010. The effect on larger firms decreased with firm size, which we interpret to mean that these firms had greater access to outside capital.
Keywords: Student Loans, Small Business, Debt
JEL Classification: D12, I22, I25, I28, H31, R2
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