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August 14 2013

Are Student Loans Killing Entrepreneurship?

Charlotte Hays

News Flash: People are borrowing money to go to college, long considered the path to professional achievement, and then finding that the loans block their upward mobility.

Ironically, student loans may be harming the people they were designed to help and in the process taking a lot of oomph out of the economy.

The Wall Street Journal reports today that the nation's $1.2 trillion in student debt is forcing some people who might otherwise be entrepreneurs to shelve their dreams.

The Journal tells the story of Christine, 29, and John Carney, 31, who started Thick & Thin Designs, which makes cleverly shaped food picks and sells them with attractive packaging. Both Carneys are students at the University of Maine—he for a graduate degree in fine arts and she for a second undergraduate degree.

The cost of a box of decorative items from Thick & Thin, which can be used for cupcake toppers, is $12.  The Carneys are doing well and could be expanding:

But they chose not to purchase a laser cutter, because doing so would require them to take out a business loan—and together they have $140,000 in leftover student debt. Instead, they use a university-owned laser cutter, which limits the size of the acrylic sheets they can work with. Having the student-loan debt "is preventing me from being able to take a lot of chances or risks that are usually necessary when starting a business," Ms. Carney says.

The Carneys aren’t alone:

The average student who borrows has piled up about $40,000 in debt by graduation, including parents' loans, nearly double the levels of a decade ago, according to Edvisors.com, which runs college-planning and financial-aid websites. Recipients of graduate and professional degrees who borrow average more than $55,000 in debt at graduation, including undergraduate loans, but not parent loans. That is up from $40,800 some 10 years ago.

Some academic experts say leftover loans are the biggest impediment to upstart entrepreneurship by those who recently received college or graduate degrees. "I mentor students all the time," says Vivek Wadhwa, a fellow at Stanford University Law School. "The single largest inhibitor to entrepreneurship is the student loans."

In other words, loans which students take to get ahead are ruining their careers at the outset. An expert from the Harvard Business School is quoted saying that college dropouts and recent graduates account for a disproportionate share of founders of technology start-ups. He says that many recent business graduates "are willing to sleep on a couch for a year or two, but they can't do it with the burden of student loans.”

Let’s face it: no matter how well-intended the creators of government-backed student loans may have been, the program is a bust. It impedes many students and, given the import of this story, is a disaster for the economy.

President Obama has a solution: making more college loans available so that more people can become, in effect, indentured. Unfortunately, this form of indentured servitude, unlike the real indentured servitude in our colonial period, doesn’t have a sell by date when the indentured one is free to pursue opportunities.

Some people want to tinker with the system. The Rhode Island Student Loan Authority, for example, is studying whether it is feasible to temporarily reduce or forebear payments for recent graduates.  But that’s just a band aid.

It is time to rethink college loans. Heck, it is time to rethink college. After all, kids today aren’t going in debt to walk around the agora listening to a modern day Plato or Socrates.

More likely, they’re paying to listen to the Ward Churchills or somebody just as ignorant of our culture and historical achievements. Is is really worth going into debt for this?

And aren't student loans ultimately harming not just students but the economy?

 

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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