By Karthik Krishnan and Pinshuo Wang. Student loans can impose a significant cost of undertaking risky endeavors such as starting up businesses. Using data from the Survey of Consumer Finances (SCF), we find evidence supportive of the recent policy decisions to reduce the burden of student debt to promote entrepreneurship. First, we find that a greater amount of student debt is negatively related to the propensity to start a firm. Second, conditional on starting up a firm, individuals having more student debt have less profitable firms. Further, these effects are stronger among younger cohorts and for individuals in high-technology industries. Using the Higher Education Amendments of 1992, which made federal Stafford loans more widely available, as an exogenous shock to student debt, we find that student debt negatively impact entrepreneurship and entrepreneurial success. The negative relation between student debt and entrepreneurship is stronger when the individual has a dependent spouse. Further, we find that student debt reduces the tendency of high-reward and high risk-preferring individuals to take on entrepreneurial ventures. Our evidence indicates that student debt may inhibit entrepreneurship by reducing the expected payoff of these ventures to individuals by exacerbating the effect of negative outcomes on the individual. Given the high value of student loans outstanding (more than $1 trillion) and its potentially significant impact on entrepreneurship, we believe that our results shine some light on an important phenomenon. Northeastern U. D’Amore-McKim School of Business Research Paper No. 2586378. Download This Paper. More...