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Is Student Debt Crippling Entrepreneurship?

"Student debt chips away at the ability to be a risk-taking entrepreneur," notes a recent article in The New Republic. Here's how business leaders can react.
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It's not earth-shattering news. It's more like research supporting what you already know: "Student debt chips away at the ability to be a risk-taking entrepreneur," notes a recent report by Mike Konczal in The New Republic.

The report cites evidence from numerous studies showing that debt decreases the risk-taking of recent graduates. That much, you could've guessed. But a measurable decrease in entrepreneurship is a significant twist on the familiar risk-aversion theme. Konczal writes: 

A recent study by Brent W. Ambrose of Pennsylvania State University, and Larry Cordell and Shuwei Ma of the Federal Reserve Bank of Philadelphia, found "a significant and economically meaningful negative correlation between changes in student loan debt and net business formation for the smallest group of small businesses." This makes sense. You can keep your high student loan burdens low if you stay with an established employer. But if you strike out on your own, you'll have less and more volatile income when you start.

Konczal's report adds yet more fuel to the fire that aspiring entrepreneurs shouldn't pursue pricey MBAs.

But there's another angle here, useful to entrepreneurs who've already started their companies, and who are interested in recruiting and retaining young educated talent.

You might gain an advantage in the talent wars, if you can figure out how to reduce the talent's debt-ridden anxieties. Two quick examples:

1. Starbucks' degree program with Arizona State University. In case you missed it, Starbucks announced it was launching a program allowing workers to earn an online degree at ASU at a reduced price--roughly $6,500 over two years, as opposed to $20,000.

Though you can find critics of Starbucks' plan, and of the coffee chain's actual contract with ASU, here's the bottom line: Starbucks is addressing a pain point in its talent base. It gets to brand itself as a benefits leader, since programs like this remain rare in corporate America. If you're a small retailer competing with Starbucks for young in-store talent, you might have had a stronger chance previously, based on your indie street cred. Now? Starbucks has another tool in its recruiting arsenal. 

Here's the larger point: If you're a small business, you can bolster recruiting by addressing the pain point of student debt. You don't have to break the bank. Remember, it's not as if Starbucks is splurging for four years of on-campus private school tuition. Starbucks simply negotiated a discount with an online degree program. 

2. Projectline Services' allowance for professional development. You might be thinking: "Great, but I'm not Starbucks. I'm a small business. I lack the leverage to negotiate an education discount with anyone, let alone a major university's online program."

True. But when it comes to your employees' educations, sometimes a little money goes a long way. After all, students are used to getting no financial help outside of loans and grants. So they will appreciate any education-based resources that you, as an employer, can provide. 

One small business who's learned this firsthand is Projectline Services, a $27-million marketing consultancy which, like Starbucks, happens to be based in Seattle. Each full-time employee (there are currently 175) gets a $1,500 annual allowance to spend on professional development. 

Employees can spend the money on classes, degrees, or certifications. "The intent is that people will use this to develop or strengthen skills needed for their current role, or it can be used to prepare them for their next role based on personal or professional goals," says CEO and cofounder Mike Kichline. 

Here's how it works: Employees meets regularly with their managers to discuss professional development, including education. After the discussion, employees can submit a formal request for the funds through a basic HR form. If the request is approved--and it almost always is--the money gets released.

An added win for Projectline is what sometimes happens after employees use the allowance: Employees share what they've learned with the rest of the company through brown-bag lunches--or newfound job duties. For example, one employee took a filmmaking class. Film had little to do with his current role, but he demonstrated that it was "something he could apply to many areas within the company," recalls Kichline. Since taking the class, the employee has made several useful videos for Projectline.

Granted: $1,500 per employee isn't cheap. But the goal here isn't to spend lavishly on benefits. It's to let your talent know that you care about the exorbitant cost of education. Even a $100-per-employee allowance would be $100 more than your employees are likely to get from another employer. You'll gain their appreciation, and--as Projectline has demonstrated--your company will benefit from what they've learned.

Last updated: Jun 26, 2014




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