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The Cost of Financing Education: Can Student Debt Hinder Entrepreneurship?

54 Pages Posted: 29 Mar 2015 Last revised: 3 Aug 2017

Karthik Krishnan

Northeastern University

Pinshuo Wang

Northeastern University - Department of Economics

Date Written: June 1, 2017

Abstract

We find that student debt is negatively related to the propensity to start a firm, particularly larger and more successful ventures. An exogenous change due to the Higher Education Amendments of 1998, which made student debt completely non-dischargeable through personal bankruptcy, reduced the likelihood of entrepreneurship by student loan borrowers that were already in four-year college at the time of this regulation. Moreover, an exogenous shock to the level of student debt due to the Higher Education Amendments of 1992 negatively impacts entrepreneurship rates for students already in four-year college at the time of this regulation. Entrepreneurs with more student debt are more likely to fall behind on their student debt payments, and this relation is mitigated when their ventures are successful. Our evidence indicates that student debt inhibits entrepreneurship by exacerbating the effect of negative business outcomes on the individual.

Suggested Citation

Krishnan, Karthik and Wang, Pinshuo, The Cost of Financing Education: Can Student Debt Hinder Entrepreneurship? (June 1, 2017). Northeastern U. D’Amore-McKim School of Business Research Paper No. 2586378. Available at SSRN: https://ssrn.com/abstract=2586378 or http://dx.doi.org/10.2139/ssrn.2586378

Karthik Krishnan (Contact Author)

Northeastern University ( email )

360 Huntington Avenue
414C Hayden Hall
Boston, MA 02115
United States
617-373-4707 (Phone)

HOME PAGE: http://www.northeastern.edu/kkrishnan

Pinshuo Wang

Northeastern University - Department of Economics ( email )

360 Huntington Ave
301 Lake Hall
Boston, MA 02115
United States

HOME PAGE: http://sites.google.com/site/neupinshuowang

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