Lawmakers and borrowers are pushing for further student loan relief, as the October 1 date approaches for the resumption of loan payments. Borrowers continue to assert that they are not yet in a place to make payments, which were paused interest free throughout the pandemic. And while the Biden administration has repeatedly argued for student debt forgiveness and fixes to the system, little progress has been made since he took office.
Though, while conversations on the student loan system ensue, the impact student debt has on entrepreneurship is often under-discussed. According to a study by the Kauffman Foundation, roughly 1 in 6 adults in the U.S. has student loan debt, and for adults aged 18 through 29, that ratio jumps to 1 in 3 adults. That same study found that borrowers attribute student loan debt to their ability to start a new business, or in the case of business owners, their ability to hire new employees. This potential loss of startup founders ultimately means student loan debt could play a serious role in repressing innovative discovery and job creation.
As the U.S. emerges from the pandemic, new startups are crucial for economic growth and job formation. But with student loan debt directly draining the savings and personal wealth of potential founders, many would-be startups may never get off the ground. This is exacerbated for many founders of color who already face capital access and student loan debt burdens that eclipse their peers. Over 64 percent of new businesses rely on personal or family savings to launch, and another 9 percent rely on personal credit. These common financing methods are dramatically impacted by the presence of crippling student loan debt. Launching a startup is inherently risky to begin with, especially since many founders do not initially take a salary and have no health or unemployment insurance safety net. But when faced with possible decades of typically non-dischargeable student loan debt, business ownership may become out of reach for many when paying down debt and for other necessities supersedes launching an innovative company.
If policymakers are serious about committing to long term pandemic recovery, they must ensure that new businesses and startup founders can afford to launch in the first place. Cancelling a modest amount of student loan debt, supported by both the administration and many members of Congress, represents a good first step in alleviating the burden facing would-be entrepreneurs. Other proposals like those that allow new business owners to defer payments and interest for a set number of years, or offer forgiveness after a period of payment, also present solutions. One promising option is the Supporting America’s Young Entrepreneurs Act of 2021, sponsored by House Small Business Chairwoman Nydia Velázquez (NY-7), which would allow for both a modest amount of debt cancellation for eligible young entrepreneurs, and would permit small business startup founders to defer payments without accruing interest for up to three years.
Two facts are presently clear — borrowers are not ready to begin repayment on October 1, 2021, and new businesses will be essential for long term recovery post-pandemic. Policymakers must ease the student loan burden for millions of Americans—including startup founders—so that startups can launch and flourish post-pandemic.
