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The Latest Casualty of Student Debt: Start-ups


As America’s total student loan debt nudges toward the $1.2 trillion mark, it’s becoming increasingly obvious that the burden is bad for the economy as a whole. The real estate and auto markets, for example, take a hit when large numbers of college grads avoid buying a home or a car in order to pay back their loans on time. Young people saddled with student loan debt also, unsurprisingly, find it difficult to take the financial risks associated with entrepreneurship, as the WSJ reports:

Recent graduates and college dropouts account for a disproportionate share of the founders of technology startups that have transformed the economy over the past decade, says Shikhar Ghosh, a senior lecturer at Harvard Business School. Many freshly-minted M.B.A.s “are willing to sleep on a couch for a year or two, but they can’t do it with the burden of student loans,” he adds.

Jackson Solway created an online service last year to connect employers with teams of freelancers. He hoped he could sell it to companies eager to keep staffing lean. But he gave up on his new business venture this spring, after just one year. Faced with $400-a-month payments on nearly $40,000 in student-loan debt, he says he had little choice but to look for the steady paychecks that accompany a regular job.

If he didn’t face student-loan payments, he says, he would have worked at his nascent business venture for at least another six months.

And this story is only one of many. Take a bird’s eye view of all the unrealized or deferred start-ups, and it’s not unreasonable to think that student debt is directly impacting new business creation in the US. This is another troubling sign for an economy that is still struggling to pull itself out of recession.

As America transitions to a post-manufacturing economy, service businesses run by individuals and small groups will become an increasingly important driver of new jobs and economic growth. Ideally, energetic people with good ideas and sound business plans shouldn’t face unnecessary obstacles to building these sorts of enterprises. Instead, many of them are saddled with so much student loan debt that they can’t handle the routine costs of owning a business.

[Ball and chain image courtesy of Shutterstock]

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  • Jim__L

    Another thing that destroys start-ups is the fact that so many academic papers are locked behind a paywall by companies that provide little or no value-add for the $15, $25, or ever $50 they charge for a scholarly article.

    If you’re doing research on a topic, you’re not going to know whether any given article you want to read is actually going to help you out, making most of these articles a waste of money.

    Most American research and development these days is not done by large companies (with deep pockets to handle those sorts of fees), but by small start-ups who assume all the risk of developing promising technology for the chance of being bought out by a large company somewhere down the line. Putting up obstacles (like paywall fees for scholarly articles) means the American economy can’t take full advantage of our world-class university system.

    Anyone who really wants to unleash the potential of America (and humanity, for that matter) by making information available to all, they have clear enemies in the form of Elsevier and other scholarly-article gatekeepers.

    Google, are you listening?

  • Kavanna

    While it may be true that our post-blue social model world needs more small businesses and self-employment, what’s happening in reality is that entrepreneuriship, self-employment, and small business formation have been in decline for more than a decade, with the decline dramatically accelerating in the last five years. It’s the main reason for the terrible labor market, as small businesses account for most job growth.

    In place of such healthy trends is the trend of “dependency, not recovery.” More Americans as a percentage are dependent on government than at any time in our history.

  • Anthony_Eller

    I ask you to help me find solutions
    It is up to the American citizens to bring awareness to anyone and everyone that will listen The last election it took $7Billion to elect the President and Congress so many favors owed the students will never have a chance to get out of debt! There is no real news to report the truth I call it :”lollypop news” where you pick your own flavor news! We need results not the Rhetoric our president and congress are trying to sell us on! We are being patronized,because they work for a select few! Not the hard working citizens!

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