There is little doubt that a college degree gives recipients a leg up on those who enter the work force armed with only a high school diploma, but the cost of higher education comes with a soaring price tag. As of 2011, according to The Project on Student Debt, the average debt load for students graduating with a bachelor's degree was $26,600. For some, that level can reach $40,000 when loans to parents are factored in.
Despite the advantage that a four-year degree affords job-seekers, there is one area in which they are truly limited. When it comes to starting their own businesses, many graduates find that the combination of student debt and entrepreneurial sacrifice just don't mix.
Onerous debt precludes business start-ups
The Wall Street Journal recently profiled several young entrepreneurs who were faced with tens of thousands of dollars in student debt. While some have given up their dreams of starting their own businesses because of the need to make regular college loan payments, others have persevered. One big problem: getting business loans to get a new concept off the ground, when you -- and, probably, your partner -- have outstanding student loans.
Likewise, Bloomberg noted this past spring that 43% of 25-year-old college graduates now have some student debt, up from 25% less than 10 years ago. In addition, the level of debt nearly doubled, from nearly $11,000 in 2003 to over $20,000 in 2012.
For those with debt from private lenders, which has fewer repayment options than federal loans, the situation is even more oppressive. Nearly 23% of respondents to a survey administered earlier this year by the Young Invincibles admitted to postponing their plans to start their own business due to heavy private student debt loads. Approximately 8% stated that they had been refused a loan that they had attempted to secure in order to start a new business.
Other life experiences are also affected
Student debt also impinges on graduates' ability to purchase a home. A study by the National Association of Builders has noted that home ownership has fallen for persons under the age of 44 due to heavy student debt. The Young Invincibles report revealed that 15% of the nearly 10,000 respondents said they had been denied a mortgage because of student loan debt.
Similarly, the report showed that 21% of the survey participants had been denied a car loan because of their debt load. Nearly 45% acknowledged that they hadn't applied for credit for any purpose, assuming that they would not qualify.
Bad for business, the economy, and investors
It is well known that small businesses are extremely important to the economy. This past June, for instance, companies with 50 or fewer employees were responsible for 45% of the new jobs created that month. If new college graduates are hampered in their efforts to create new businesses, it is unlikely that the unemployment level will be substantially lowered.
Persons with insurmountable levels of debt will likely never be able to invest in their own businesses, a home, or their own retirement. Until this problem is brought under control -- for instance, by providing free, community-college level education to reduce total debt loads -- the economy will suffer from the loss of a generation's worth of business acumen, buried and extinguished under mountains of student debt.