Aversion to Student Debt? Evidence from Low-Wage Workers

Radhakrishnan Gopalan, Barton H. Hamilton, Jorge Sabat, David Sovich

Research output: Contribution to journalArticlepeer-review

1 Scopus citations


We combine state minimum wage changes with individual-level income and credit data to estimate the effect of wage gains on the debt of low-wage workers. In the three years following a $0.88 minimum wage increase, low-wage workers experience a $2,712 income increase and a $856 decrease in debt. The entire decline in debt comes from less student loan borrowing among enrolled college students. Credit constraints, buffer-stock behavior, and other rational channels cannot explain the reduction in student debt. Our results are consistent with students perceiving a utility cost of borrowing student debt arising from mental accounting.

Original languageEnglish
Pages (from-to)1249-1295
Number of pages47
JournalJournal of Finance
Issue number2
StatePublished - Apr 2024

Bibliographical note

Publisher Copyright:
© 2023 the American Finance Association.

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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