Student Debt and Entrepreneurship in the US

Résumé

Policy makers and researchers are actively debating over the consequences of student debt for individuals’ choices and aggregate quantities in the US. Using micro-level data and focusing on entrepreneurial outcomes, I document that having a student loan is associated with a lower likelihood of opening a firm and obtaining funding, and is linked to lower business size and revenues. To rationalize my findings, I build a heterogeneous agents model with education and entrepreneurial decisions, where student debt slows down the accumulation of wealth and reduces the collateral entrepreneurs can pledge to rent capital on financial markets. Calibrated to US data, my framework matches between 30 and 80% of the gaps in entrepreneurial margins across agents with and without college, and with or without loans. I also show that the increase in university prices and student debt since the late 1980s accounts for a third of the decline in the entrepreneurial rate of college graduates with loans. Finally, I use my model as a quantitative laboratory to study the effect of several policy proposals, such as expanding grants, raising college borrowing limits and switching to income-driven repayment plans.