Student Loans are Hindering Entrepreneurship for Millennials

Billy McGrath on 13 February 2019

The technological revolution has lowered the barriers to entry across many different industries. The ubiquity of technology has slashed costs and made it possible for small businesses to compete against big corporations in increasingly targeted markets. Entrepreneurship and employment rates have gone up, especially as the Gig Economy grows. There is still a huge hindrance to economic prosperity in America, however: the ever growing mountain of student loan debt.

People with more education acquire more skills which helps America compete with other world economic powers. Tuition costs for higher education have made it impossible, however, for the vast majority of Americans to afford school without taking out some sort of loans. 

Risk aversion

The huge expense of education is now making Americans less willing to take financial risks. High school graduation rates are at an all time high, but college enrollment rates are declining. The fear of long term debt is preventing Americans from getting higher degrees and instead opting for more certain employment. Employment without a college degree is often very limited, however, and leaves the employee with little mobility and career prospects.

Participating in the Gig Economy becomes risky for both workers and founders. Freelancing can bring highs that were previously impossible, but the well can often run dry. For those with student loan debt, monthly loan repayments do not wait for the inconsistency of the Gig Economy. Payments are due monthly. 

Starting a company is also a large financial risk. People are less likely to quit their current job -- and give up the guaranteed income -- to act on ideas and create their own company when they are tied up with student debt. These would-be startups could benefit its customers and drive job growth, but they are never seeing the light of day. The fear of defaulting on student loans is blocking a more prosperous American economy.

What to do?

The easiest solution would be to make college more accessible and affordable by lowering tuition costs. But there are other more active steps to take instead of sitting around and waiting for a decrease in tuition that may never happen. As the new Congress gets settled in, we are already starting to see some bills proposed that could reduce loan interest rates or provide some relief for certain borrowing groups. A SHRM-backed bill is also aiming to make student loan repayment benefits tax-free, similar to current regulations for 401(k) plans. 

More employers need to begin adopting student loan repayment benefits, as well. Student loan repayment benefits are quickly becoming one of the most desirable perks for employees in today’s workforce. Many startups have chosen to set up student loan benefits right along with health care to help attract top talent.

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