Seminario Administración: Aversion to student debt? Evidence from low-wage workers


05/05/2021 - 13:10 hrs

Expone: Jorge Sabat, académico Departamento Administración Facultad de Economía y Empresa UDP.

Paper: Aversion to student debt? Evidence from low-wage workers


We use payroll and consumer credit data to estimate the effect of the minimum wage on the debts of low-wage workers. In the three years following a $0.88 increase in the minimum wage, the average low-wage worker experiences a $2,712 increase in income and a $856 decrease in debt. The entire decline in debt comes from a reduction in student loan borrowing among enrolled college students. Former students and non-students, in contrast, borrow more in response to an increase in the minimum wage. Future credit constraints, changes in labor supply, buffer-stock behavior, and several other channels do not explain the reduction in student loan debt. Two consumption-savings models -one with student debt aversion and the other with a high perceived student loan interest rate best match our empirical findings.