Potential entrepreneurs are now being deterred due to high student loan debt balances upon graduating.
The number of college graduates has gone up significantly since 2000, but fewer graduates in recent years are taking the initiative to start their own businesses. Many would-be entrepreneurs say student loan debt is to blame, Quartz reported.
Recently, there has been a noticeable decline in IPO offerings and fewer startups being founded. Traditionally, 20 percent of MBA students had launched a business within three years of graduation. That number peaked in 2015, only to drop this year to 16 percent of MBA students.
This may come as a surprise to some since millennials are often associated with entrepreneurship. But the data doesn’t support the image of the entrepreneurial millennial.
The number of people under the age of 30 who are starting businesses has decreased by 65 percent since the 1980s. In 2014, over 40 percent of borrowers from the ages of 25 to 34 said that fear of failure kept them from starting a business. In 2001, that figure was 24 percent.
In a 2016 Senate hearing, John Lettieri, co-founder and president of the Economic Innovation Group, referred to millennials as “the least entrepreneurial generation in recent history.”
Yet in spite of the numbers, 60 percent of millennials self-identify as being entrepreneurial, according to Quartz. Although fewer than 2 percent of millennials are currently self-employed, most hope to own their own business one day.
These figures may represent the impact student loan debt has had on most millennials. Entrepreneurship can offer little stability and it might not promise enough money to pay their student loans each month, especially when starting out. The result is that many borrowers look for jobs that promise a steady monthly paycheck.
There Are Ways to Manage Student Loan Debt
Starting a business isn’t easy even in the best of circumstances, and student loan debt can make it even more difficult. But there are options for millennials who want to find a way to make it work.
Borrowers who don’t have an abundance of cash can seek out financing options. Traditional loans and small business loans are options worth exploring. Although both come with their share of pros and cons, so borrowers should research all their options first.
Borrowers might also be surprised by the number of options available to them when it comes to student loan repayment. Loan consolidation, income-based repayment plans, and student loan refinancing can lower a borrower’s monthly payments and make the debt more manageable before starting a business.
If the number of startups continues to decline, it will be interesting to see if the government will incentivize borrowers to start their own businesses. It might be worth it to offer tax credits to would-be founders, especially if it encourages them to start a business that will create more jobs and bring more money into the economy.