With new business formation actually down in America, the giant generation known as Gen-Y (aka the Millennials) have been hailed by some experts as the great hope for a revival. There are tons of these well-educated twenty-something strivers, for one thing, and they've come of age in the midst of startup mania, watching some of their own, like Mark Zuckerberg, make fortunes and change the world through entrepreneurship.

It's an optimistic and hopeful argument, but according to an analysis by E.J. Reedy and Arnobio Morelix, both of the Kauffman Foundation, there may be one significant roadblock to a Gen-Y led entrepreneurship revival--student debt.

"Is this the generation whose entrepreneurship propensities will unleash the next wave of economic growth, or will this generation's entrepreneurship potential fizzle?" the pair of researchers asked in Forbes recently before offering a cautiously pessimistic answer.

"Although we cannot yet infer any causal relationships, rising student debt levels have, to an extent, coincided with falling entrepreneurship rates among young people. Intuitively, a relationship between the two makes sense. Entrepreneurs need capital to start new businesses, and young people with student debt lag far behind on accumulating net worth," they note.

$1.2 Trillion in the Hole

This link between high levels of indebtedness and falling rates of entrepreneurialism is untested, Reedy and Morelix are at pains to point out, and the Kauffman Foundation is planning further research into the question, but there can be absolutely no doubt about the heaviness of the debt burden Gen-Y carries. Young people are starting their careers collectively $1.2 trillion in the hole. That gasp-inducing statistic works out to an average of nearly $30,000 of debt per graduate, a rise of more than $10,000 in just a decade.

There are no slam-dunk solutions to the problem, Reedy and Morelix explain. "While some policy solutions have been put forward to place a Band-Aid on the problem of rising debt--such as income-based repayment--we believe there remains room for considering how even these programs could be handicapping the Millennial generation of entrepreneurs," they write. Take all these facts together and the article makes for pretty grim reading for those banking on Gen-Y to be one of the most entrepreneurial generations in history.

Do you believe that young people's student loan debt is getting in the way of their entrepreneurial dreams?

Published on: Sep 25, 2014