Are student loans deterring millennials from launching startups? - Technical.ly Brooklyn

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Sep. 1, 2015 10:09 am

Are student loans deterring millennials from launching startups?

Citing a pair of reports, a recent article in the Wall Street Journal makes the case.
On campus at the NYU Polytechnic School of Engineering.

On campus at the NYU Polytechnic School of Engineering.

(Photo by Brady Dale)

Young people have always been more likely to take more risks in their careers and follow their dreams to a greater extent than their family-beholden, house-rooted, labor market forbears, the olds.

But some are saying this is changing.

Over the weekend the Wall Street Journal argued that the high level of student debt is causing more young people to seek lower-risk jobs coming out of college, at the expense of venturing into the high-risk world of startups.

“One result is that students choose different careers, flocking to existing companies—if they manage to find a job in an economy in which more than half of parking lot attendants report some college experience,” the Journal report says. “There’s no longer an incentive to plunge into the risk-taking that produces valuable and innovative companies.”

Read the full story

Student debt is over $1 trillion, according to a study from the Federal Reserve Bank of Philadelphia, which the journal quoted closely. And that figure is growing. In 2007, total student debt stood at $547 billion, meaning that we’ve seen a doubling in under a decade.

The Philly Fed’s Orwellian-named study, “WORKING PAPER NO. 15-26 THE IMPACT OF STUDENT LOAN DEBT ON SMALL BUSINESS FORMATION” makes the point, too:

To start a small business, individuals need access to capital. Given the importance of an entrepreneur’s personal debt capacity in financing a startup business, student loan debt, which is difficult to discharge via bankruptcy, can have lasting effects and may have an impact on the ability of future small business owners to raise capital. … We find a significant and economically meaningful negative correlation between changes in student loan debt and net business formation for the smallest group of small businesses, those employing one to four employees.

The Journal also cited a study saying this is actually coming to pass.

“The Kauffman Foundation has reported that new entrepreneurs ages 20 to 34 fell to 23% of self-starters in 2013. That’s down from 35% in 1996.”

What’s your take?

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