Abstract

http://ssrn.com/abstract=2417676
 


 



The Impact of Student Loan Debt on Small Business Formation


Brent W. Ambrose


Pennsylvania State University

Larry Cordell


Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Shuwei Ma


Federal Reserve Bank of Philadelphia

March 29, 2014


Abstract:     
Small businesses are the backbone of the US economy and account for approximately half of the private-sector economy and 99% of all businesses. To start a small business, individuals need access to capital. Given the importance of an entrepreneur’s personal debt capacity in financing a start-up business, student loan debt, which cannot be discharged via bankruptcy, can have lasting effects later in life and may impact the ability of future small business owners to raise capital. 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 loan debt and net business formation for the smallest group of small businesses, those employing 1-4 employees. This is important since these small businesses depend the most heavily on personal debt to finance new business formation. Based on our model, a one standard deviation increase in student debt reduces 1-4 employee businesses by 25 percent on average between 2000 and 2010. The effect on larger firm formation is not significant, which we interpret to mean that these firms have greater access to outside finance.

Number of Pages in PDF File: 30

Keywords: Student Loans, Small Business, Debt

JEL Classification: D12, I22

working papers series





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Date posted: March 31, 2014  

Suggested Citation

Ambrose, Brent W. and Cordell, Larry and Ma, Shuwei, The Impact of Student Loan Debt on Small Business Formation (March 29, 2014). Available at SSRN: http://ssrn.com/abstract=2417676 or http://dx.doi.org/10.2139/ssrn.2417676

Contact Information

Brent W. Ambrose (Contact Author)
Pennsylvania State University ( email )
University Park, PA 16802-3306
United States
814-867-0066 (Phone)
814-865-6284 (Fax)
Larry Cordell
Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )
Ten Independence Mall
Philadelphia, PA 19106-1574
United States
Shuwei Ma
Federal Reserve Bank of Philadelphia ( email )
Ten Independence Mall
Philadelphia, PA 19106-1574
United States
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