Student Debt and Small Biz Creation

From a May 18, 2013 report by the Consumer Financial Protection Bureau.

Entrepreneurship and Small Business Formation

Commenters suggest that rising levels of student debt may have discrete impacts on American small business formation. According to these comments, student debt may suppress risk-taking and innovation by discouraging the formation of new
businesses by young entrepreneurs.

In submissions by coalitions of small businesses and startups, respondents pointed to a number of factors to explain the challenges posed by student debt. For many young entrepreneurs, it is critical to invest capital to develop ideas, market products, and hire employees. Student debt burdens require these individuals to divert cash away from their businesses so they can make monthly student loan payments. The U.S. Small Business Administration’s Start-Up America initiative recommends that aspiring entrepreneurs with student loan debt enroll in an income-driven repayment plan in order to better manage their cash flow. Although this option exists for most federal student loans, commenters note that private student loans generally do not feature this kind of flexibility in repayment.

Others note that unmanageable student debt limits their ability to access small business credit. According to a
submission by the Young Invincibles, eight percent of survey respondents with student debt stated that they
were unable to start a business because they were denied a loan.