Student Debt Hindering Entrepreneurship?

We recently mentioned a trend where students leave school to start their own business. Some entrepreneurs regret their choice, and some do not. However, those students who manage to finish school often find themselves in a massive amount of debt. Is that stopping them from starting their own businesses, too?

Consider the depth of the crisis that America’s budding entrepreneurs are up against. The graduates of 2011 are the most indebted class in history, with an average student loan debt load of $27,300 (The class of 2012 is expected to surpass that amount, and the classes of 2007-2010 aren’t far off.) In order to begin repaying such debts after graduation, many graduates seek out any employment they can find — even less well-paid opportunities far outside their fields of study — setting them back financially for years, transforming them into boomerangs that end up back home with their parents, and pushing their entrepreneurial desires to the back burner. Those individuals that do start businesses find themselves in a seemingly lose-lose cash flow struggle as potential startup funds are being siphoned off to pay loan debt. Both scenarios are less than promising, and hardly conducive to business creation. Worse yet, young people aren’t simply struggling to pay their debt obligations, hundreds of thousands can’t afford them at all. The US Department of Education recently reported that college loan default rates have risen to 8.8 percent, or $2.4 billion, ruining the credit scores of innumerable young people, many of which may have started businesses at some point in their careers, but now — or in decades down the line — may never be able to access traditional bank financing, growth capital or credit cards for a future business.

Photo by DonkeyHotey

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