In 2011, cumulative outstanding student loan debt in the United States surpassed $1 trillion. Between 2004 and 2014, the number of student loans increased 89%, and the average debt grew 77%. As student loan debt continues to grow, the burdens on the behaviors of those incurring the debt are still not fully known. What’s more, as student loan debt has increased, so too has the amount of time it takes for individuals to pay off their loans. A growing body of research has begun to point to student loan debt as a contributing factor to depressed rates of entrepreneurship, especially among younger generations. To avoid a lost generation of entrepreneurial talent, policymakers need to address the burden of student loans. Policymakers should:
- Create a federal Student Loan Deferral Plan that allows entrepreneurs faced with significant student loan burdens to apply to defer their student loans for an initial period of one year and for up to five years.
- Forgive student loan debt for entrepreneurs who continually make capped loan payments for a certain period of time through the Pay As You Earn (PAYE) or Income-Based Repayment (IBR) programs.
- Provide entrepreneurs who maintain residence in the state an exclusion from state income tax equal to the amount of student loan payments made in a year up to a capped amount.
- Research indicates that as many as six in 10 individuals expect to still be paying off student loans into their 40s. This is significant, as the average age of an entrepreneur is 42, which points to the chilling effect student loans may have on entrepreneurship.
- Black students must overcome larger student loan debt and are five times more likely to default on their student loans compared with their White peers.
- One-third of Black borrowers use income-driven repayment to pay down their student loans.
- Millennials still paying off student loans who own or have plans to own a business say their student loan payments have impacted their ability to start a business. Forty-three percent say student debt affects their ability to invest in their business or hire new employees.
- Forty-eight percent of young people who own or are interested in owning a business cite student loans as one of the main barriers to becoming an entrepreneur. Research shows that higher student loan debt corresponds with lower rates of adult entrepreneurship.