To Be an Entrepreneur or Not? That Is the Question Millennials Face
By Brittany Hackett, Communications Staff
For generations, students have been graduating college and using the knowledge gained to help launch their own businesses. But millennials, many of whom graduate with student loan debt, are finding it harder and harder to act upon their entrepreneurial spirits and chase that version of the American Dream.
A recent poll conducted by Young Invincibles (YI) and the Small Business Majority (SBM) found that many millennials with student debt view it as a barrier to starting their own business or organization. The survey found that more than half of millennials either own their own business (8 percent), are planning to start a business (16 percent), or would like to but currently do not have plans to do so (27 percent).
Forty-eight percent of millennials paying off their student debt who currently own or have plans to own a business said their student loan payments have impacted their ability to start a business, with 38 percent of millennials who would like to start a business but have no plans to do so saying the same.
The impact student debt is having on the millennial generation’s entrepreneurs is “not as simple as a student having X amount of debt and therefore it’s preventing them” from starting their business, said Chris Upperman, a senior advisor for the Small Business Administration’s Entrepreneurial Development Office, which provides counseling to small business owners and aspiring entrepreneurs.
“What you’re actually finding,” he said, “is students incurring so much debt [in college] that it makes them leery of even thinking through the process” of starting a business. Their focus, rather, is paying off or paying down their student loan debt before taking on more financial risks, Upperman said. Owning their own business is simply “not seen as a viable career path,” he noted.
And there are numerous financial risks and considerations involved with opening a new business, from securing the capital to finance a start-up to being able to hire and pay employees. In fact, 43 percent of those surveyed by YI/SBM who own their business or have plans to own a business said that their student debt affects their ability to invest in an organization or hire new employees. The same was said by 38 percent of young adults who would like to own a business but currently have no plans to do so.
Data show many millennials are delaying major life decisions like opening a credit card, purchasing a home, or starting a family. A recent survey conducted by American Student Assistance (ASA) found that 35 percent of survey respondents said their student debt made it difficult to purchase daily necessities and 52 percent said it impacted their ability to make larger purchases like a car. A majority of borrowers – 62 percent – said they were putting off saving for retirement or making other investments because of their student debt, while 55 percent said their debt is impacting their decision or ability to purchase a home.
Other major life decisions, such a starting a family or choosing a career, are also impacted by student debt, according to the ASA survey. Twenty-eight percent of survey respondents cited student debt as a reason for delaying starting a family, and 21 percent said it was the reason they delayed getting married.
And while student debt plays a significant role in these delays – and may even appear to be an obvious obstacle -- it might not be the sole reason. It is possible, Upperman said, that young adults are also hesitant to invest in things like businesses or homes after seeing the impact of the Great Recession. Events like the housing and credit crises, which likely had an impact on at least some of their parents and families, have made millennials “much more cautious” of certain behaviors that could jeopardize their financial security.
For example, 75 percent of millennials surveyed by YI/SBM who own, plan to own, or would like to own a business said that the lack of an employer-sponsored retirement plan is a barrier when considering starting a business, indicating a concern for their long-term financial security. Thirty-eight percent cited it as a “serious concern.” The level of concern is significantly higher (81 percent) among millennials who are still paying off their student loan debt, with 40 percent calling it a “serious concern.”
Overall, young entrepreneurs, and those wanting to be in that category, “represent an important force for change in helping our economy grow and thrive,” according to the YI/SBM survey. But student debt and other financial concerns “are a hindrance to that growth” and should be addressed on a policy level, they added. To begin with, the groups suggest allowing borrowers to refinance their student loan debt and to make income-based-repayment (IBR) the default option for student loan repayment.
Upperman agrees, calling the Obama administration’s focus on IBR “is a good step in the right direction.” However, Congress “needs to do more” to specifically target the burden of student loan debt, he said.
Publication Date: 2/1/2016
Mark L | 2/1/2016 12:25:01 PM
As with many of the comments on the relationship between millennials and loan debt, I have reservations about the validity of claims from advocacy groups, such as Young Invincibles.
First, the claims about entrepreneurial choices never reference statistics on rates for previous generations and for those who never attended college. Stating that loan debt prevents me from saying that it is a factor does not make it so. Collegiate millennials differ from both prior generations and those who never attended on a range of goals and values.
Housing is another area. The most recent issue of Consumer Reports identifies millennials as the drivers in the housing market. Furthermore, there is other evidence that housing choices are a generational, not a loan debt, issue.
Good surveys attempt to account for social desirability in responses and to include strata representing the range of possible respondents in the sampling plan. The referenced survey apparently lacks responses from those who did not attend. They do not report responses by loan debt level. They do not report the desire to live in higher cost urban centers, which changes the affordability of housing options.
Finally, the $30,000 average loan debt is a crude, almost meaningless measure. Dividing the outstanding total by the borrower count does not differentiate undergraduate from grad/professional debt. Nor does it reflect the lower median undergraduate debt, the measure that economic reporting prefers to the arithmetic mean.
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