Student debt, income-based repayment, and self-employment: evidence from NLSY 1997 and NFCS 2015

Abstract

ABSTRACT Based on the income-risk hypothesis, we test whether those with higher student debt are less likely to be self-employed. We also test if the income-based repayment programme increases the odds of self-employment. Using a longitudinal sample of 6,762 participants (1998–2011) in National Longitudinal Survey of Youth 1997 (NLSY97) and propensity score matching, we find that having student debt decreases the odds of self-employment by 1.3 percentage points. Further, using eligibility for income-based repayment programme as an instrument driving effect of loans in NLSY97 sample or use of income-based repayment plans in National Financial Capability Study 2015 increases the odds of self-employment of about 2 percent. The effect sizes are smaller than previous studies on student loans on labour market outcomes.