Student Loan Debt Can Stall a Startup
One year ago, a grassroots movement was born in America. Out of the worst recession in my generation's lifetime, a group of extraordinary young entrepreneurs banded together to give back, help educate and mentor its peers, and lead them down the path to self-sufficiency and entrepreneurship. What started as a loosely affiliated group of do-gooders is now known as the Young Entrepreneur Council, an invite-only non-profit organization comprised of many of America's top young entrepreneurs under the age of 35.
Over the course of our inaugural year, YEC members and I have mentored thousands of generation-Yers across the United States. In our travels, we have learned firsthand about the many barriers young people face when starting or operating businesses. While it is true that young people are launching new businesses in record numbers, solidifying us as the most entrepreneurial generation in history, the fact is, there is still much work to be done. With the youth unemployment rate remaining stubbornly high, it's time for our generation to stand up, voice their opinions and fight for the changes, especially from Washington, that they so desperately need.
This week at a YEC mentorship event hosted at the White House, more than 150 high school students, college students and recent college graduates were given that opportunity when they spoke to members of the Obama administration about several key issues that are, or will likely, prohibit them from taking on positions as job creators.
While they spoke of the need for more access to capital and micro-loans as well as the need for more peer-to-peer mentorship opportunities, there was one overriding issue: the college loan debt crisis and its anticipated effect on their potential ventures.
The graduates of 2011 are the most indebted class in history (but not for long, as the class of 2012 is expected to surpass them), and holds the highest student loan default rate in history (over 8.8 percent, or $2.4 billion). Carrying a large amount of debt can stop an aspiring entrepreneur before they even get started. Forced to pay back loans shortly after graduation, many soon-to-be graduates told me they would seek out any job they could find, even if was something far outside their field of study. This exercise will likely set them back for years, pushing their entrepreneurial desires to the back burner, if not off the table entirely.
The individuals I spoke to explained their struggles with cash flow, and how helpless they felt as available startup and operating funds were siphoned off to pay loan debt. Fearing default, since such debt is inescapable even in bankruptcy, some are working part-time jobs as progress in their entrepreneurial ventures slow.
There is a lot that can be done to help young entrepreneurs manage college loan debt, and as I explained to students, this is perfect time to make their voices heard about initiatives such as the student loan forgiveness and deferment programs presented in the Youth Entrepreneurship Act as we approach the 2012 election.
While existing programs such as the SBA's Student Startup Plan (recently announced alongside reforms to Income-Based Repayment) and Gen Y Capital Partners will help a portion of the young entrepreneur population responsibly pay down its debts while they build their businesses, more reforms are needed. Defaulting on a student loan should not have the ability to ruin the rest of a potential job creator’s financial life. Under Income-Based Repayment (created under President Bush and reformed by President Obama), program subscribers who go into public service, have their loans forgiven after 10 years. Why is this not available to entrepreneurs who create jobs, rather than take them? These are the sorts of questions I was asked at the White House, and undoubtedly, they will be echoed again during the upcoming presidential election.
In a time when America is in desperate need of economic recovery, our nation cannot afford for any willing entrepreneurial group to be sidelined; especially not our most educated. Before we begin the typical back-and-forth political banter about student loan forgiveness deferment programs, we need to think about this: Setting this generation back will not just hamper 20-somethings from starting businesses today, but rather, it will also have a drastic impact on the 30-, 40-, and 50-something job creators of tomorrow. Our nation's long-term economic recovery will depend heavily on our ability to activate countless numbers of new business owners. Stifling them now will have dire long-term consequences, whether your child (or grandchild) is an entrepreneur or not.
The Young Entrepreneur Council is a peer-to-peer mentorship organization founded by Scott Gerber in 2010. The YEC promotes entrepeneurship as a solution to youth unemployment and underenmployment, and provides its members with access to tools, mentorship and resources that support each stage of a business's development and growth.