Worried About the Economy? Help Young Entrepreneurs With Student Loans
If the United States economy was a movie, student loans would be the super villain– or at the very least, a founding member of the Suicide Squad.
Over the past decade or so, outstanding student loan debt has grown faster than a toxic algae bloom, surpassing a whopping $1.3 trillion. Saddled with increasingly scary levels of debt, young professionals have decreased spending and put off major purchases, such as buying a home, fueling an ongoing drag on the economy. Inability to pay student loan debt can even lead to mental health issues and physical illness, which can have a major impact on employee productivity and business performance.
So it’s no surprise to see headlines about the latest student loan victim du jour: the young entrepreneur. The crime? Recent data suggests that student loans are preventing would-be founders from starting businesses. When businesses aren’t being started, jobs aren’t being created. And when jobs aren’t being created, well, you guessed it—the economy suffers.
Of course, this isn’t a new phenomenon. In fact, some have been sounding alarms for a while. But when Democratic presidential candidate Hillary Clinton announced a new proposal to alleviate student loan debt for entrepreneurs, it lit a much-needed fire under this topic.
As a strong supporter of young entrepreneurs (and sponsor of our own student loan-focused Entrepreneur Program), SoFi is more than happy to keep the discussion going. In order to assess Clinton’s proposal, let’s take a step back and review the connection between student loans, entrepreneurs, and the U.S. economy.
Student Loans and Entrepreneurs: Not Exactly a Love Story
In his testimony before the U.S. Senate in July, John Lettieri, co-founder of the Economic Innovation Group, said, “Millennials are on track to be the least entrepreneurial generation in recent history.” Citing a 2016 Small Business Administration report, he noted that less than 4% of today’s 30-year-olds are self-employed, compared to 5.4% of Gen Xers and 6.7% of Baby Boomers surveyed at that same age. He also noted that young people contributed half the number of startup launches in 2014 (18 percent) than they did in 1996 (35 percent).
These are surprising stats for a generation that’s often painted as being more entrepreneurial than its predecessors. But when you consider that the number of student loan borrowers increased 89% and the average loan balance increased 77% between 2004 and 2014, the picture becomes much clearer. “Even when student debt is bearable, it can still shape a life, nudging young people toward jobs that guarantee a steady salary,” says Derek Thomson, senior editor at The Atlantic.
This is a big problem, and not just because a sizable chunk of America’s largest living generation is unable to pursue their entrepreneurial dreams. The shortage of young founders has contributed to a sharp decline in the overall startup rate over the past 30 years. Fewer startups means fewer established companies, fewer jobs, and more competition among jobseekers—all of which contribute to the wage stagnation that’s been causing a “Millennial wealth gap” for some time now. It also means lower productivity, an important predictor of economic growth for the U.S. economy.
And that’s getting people’s attention.
Getting to Happily Ever After
When it comes to solving the student loan crisis, there’s certainly no shortage of ideas. In fact, SoFi’s student loan refinancing business is one of those ideas in action. And while the presidential candidates have put forth a number of potential solutions, Clinton’s latest proposal is particularly intriguing because of its focus on the endangered young entrepreneur.
The initiative, unveiled last month as part of the Democratic candidate’s broader technology program, would allow borrowers to defer federal student loan payments for up to three years while they build their businesses. In addition, borrowers who start new businesses in distressed communities would be eligible for up to $17,500 in student loan forgiveness after five years. “The goal is not just to create jobs and encourage entrepreneurship amongst millennials,” says Rana Foroohar, Time Magazine’s economic columnist, “but also to help boost enterprise creation in general.”
At SoFi, we’re big fans of any solution that helps people start businesses—after all, that’s why we launched our Entrepreneur Program in 2013. The program empowers a select handful of promising entrepreneurs by providing the financial flexibility and a support network that can help them find success. Participants in the program receive four main benefits:
Student loan assistance: Puts loans on hold for up to 12 months while entrepreneurs are in the program.
Investor access: Introduces entrepreneurs to potential investors from the SoFi network.
Mentorship and coaching: Entrepreneurs attend a series of workshops on topics like fundraising, growth and acquisition, and marketing strategy.
Peer network: Participants meet other entrepreneurs who are experiencing similar challenges.
When Michael Maylahn, the 25-year-old co-founder of biotech company Stasis Labs, discovered the SoFi Entrepreneur Program, he thought it was too good to be true. “I was surprised to find a financial institution that allowed entrepreneurs to pursue what they cared about by providing loan deferment and mentorship,” said Maylahn, whose mission is to provide modern healthcare technology to developing countries. “If I had to pay $2,000 a month now toward my loans, I’d have a lot less money to allocate to building my company.”
Since its inception, the SoFi Entrepreneur Program has admitted over 60 entrepreneurs, many of whom have found startup success. SoFi member Benny Joseph’s Good April was acquired by Intuit in 2013, while member Bradley Buda’s Meldium was acquired by LogMeIn in 2014. And many others have gained significant customer traction and funding.
Helping young entrepreneurs start new businesses just might be the superpower the U.S. economy has been waiting for.
If you’re a founder or co-founder working on your own business full-time and you have student loan debt, visit sofi.com/refinance-student-loan/ to learn more about how SoFi can help you.
The original version of this article first appeared on Business Insider and has been modified for the SoFi blog.