What question did this study set out to answer?

This study investigates how access to payday loans affects the job performance and retention of military personnel.

May 28, 2014Review of Financial Studies209 citations

In Harm's Way? Payday Loan Access and Military Personnel Performance

SCScott CarrellThe University of Texas at Austin JZJonathan ZinmanBoston College

Key Points

This study investigates how access to payday loans affects the job performance and retention of military personnel.
Utilized exogenous variation in Air Force personnel assignments to bases across the U.S.
Analyzed within-state variation in lending laws over time.
Focused on enlisted personnel in the Air Force.
Job performance and retention declined with access to payday loans, particularly among inexperienced airmen.
Severely poor readiness increased with access to high-interest debt.
Effects were strongest among financially unsophisticated airmen.

Abstract

Does borrowing at 400% APR do more harm than good? The U.S. Department of Defense thinks so and successfully lobbied for a 36% APR cap on loans to servicemen. But existing evidence on how access to high-interest debt affects borrowers is inconclusive. We estimate effects of payday loan access on enlisted personnel using exogenous variation in Air Force rules assigning personnel to bases across the United States, and within-state variation in lending laws over time. Airmen job performance and retention declines with payday loan access, and severely poor readiness increases. These effects are strongest among relatively inexperienced and financially unsophisticated airmen.

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