Aversion to Student Debt? Evidence from Low-Wage Workers

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

doi:10.1111/jofi.13297

Aversion to Student Debt? Evidence from Low-Wage Workers

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

Finance and Quantitative Methods

Research output: Contribution to journal › Article › peer-review

1 Scopus citations

Abstract

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 language	English
Pages (from-to)	1249-1295
Number of pages	47
Journal	Journal of Finance
Volume	79
Issue number	2
DOIs	https://doi.org/10.1111/jofi.13297
State	Published - Apr 2024

Bibliographical note

Publisher Copyright:
© 2023 the American Finance Association.

ASJC Scopus subject areas

Accounting
Finance
Economics and Econometrics

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1111/jofi.13297

Cite this

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Aversion to Student Debt? Evidence from Low-Wage Workers

Abstract

Bibliographical note

ASJC Scopus subject areas

UN SDGs

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