Student Loan Breaks for Entrepreneurs
A Special Report by Adam Bluestein and Amy Barrett
Why the federal government and lenders should cut recent grads some slack.
In 2007, the government began offering breaks to students with federal-loan debts of opt for public-interest work - allowing them to walk away from their debts after 10 years, compared with 25 years for recipients of some other federal loans. Entrepreneurs should get the same kind of consideration.
According to the nonprofit Project on Student Debt, 1.4 million students graduating from a four-year college or university in 2008 had student-loan debt, up from 1.1 million just four years earlier. Average debt levels for graduating seniors with loans during that time rose 24 percent to $23,200. And the percentage of grads with eye-popping loan obligations is growing: In 2008, 10 percent of four-year college grads owed more than $40,000, up from 3 percent in 1996.
What does this have to do with entrepreneurship? Plenty. A 2007 paper by researchers at Princeton University found that student-loan debt causes students to choose higher-salaried jobs and reduces the likelihood they will opt for lower-paying public-interest jobs. It seems reasonable that the same would be true for riskier propositions like launching a business. "A lot of my students are afraid to start companies because of their student-loan debt," says Vivek Wadhwa, director of research at Duke University's Pratt School of Engineering.
What can be done? In 2007, the government began offering breaks to students with federal-loan debts who opt for public-interest work -- allowing them to walk away from their debts after 10 years, compared with 25 years for recipients of some other federal loans. Entrepreneurs should get the same kind of consideration.
Bottom Line Let grads who start businesses postpone loan payments for a few years while they get their ventures off the ground.