How Student Loans Are Crushing Millennial Entrepreneurialism
A dynamic economy needs highly educated workers and entrepreneurs who can afford to take risks. Mountainous college debt stunts both.
Getting American entrepreneurialism and job growth on track throughout the country is about eliminating the barriers to bringing an idea to life and having the skills to do it. The Gig Economy is an important lever in making that happen. But its full potential to create mass prosperity won't be realized until we make higher education a sure economic bet instead of an uncertain gamble that a lifetime of student loan debt will pay off. The Trump administration and the GOP-controlled Congress should focus on saving millions of American students and their families -- not to mention the larger US economy -- from this long-term financial black hole.
The case for becoming more educated starts with lifetime earnings. Those who have more of education tend to make more money while also filling the skills gap that undermines America’s ability to compete globally. According to a report from PwC, the number one concern of CEOs around the globe is finding enough skilled talent. We can't solve that talent shortage domestically when many 18-year-olds are discouraged by valid fears of long-term indebtedness from borrowing enough for the education employers want. Worries about debt cause untold numbers of students to pursue safer, but limited career paths, or even skip higher education entirely. One troubling sign pointing to slower long term economic growth: U.S. high school graduation rates are higher than ever but college enrollment rates continue to decrease.
The numbers suggest why. Forty four million Americans collectively owe $1.3 trillion in student loan debt. The average payment for borrowers 20 to 30 years old is $351. The number of borrowers over the age of 60 with student loan debt grew from 700,000 in 2005 to 2.8 million in 2015. That’s a 300 percent increase.
The Gig Economy could be a limitless source of economic opportunity for educated workers, if not for student debt. The inevitable highs and lows of freelancing become impossible when the monthly student loan payment comes due. Already indebted workers are reluctant to borrow more to finance the revamped skills that would otherwise grow their freelance business. Would-be entrepreneurs hamstrung by student debt are more likely to keep their current jobs and less likely to launch new businesses that could create new jobs. The fears we have individually of being swallowed by mounting student loan payments are swallowing the more prosperous future economy we could be building.
The new administration could do a lot to solve one of America's greatest economic problems.
Move forward with income-based repayment plans.
Debt relief, or income-based repayment plans, offer a safety net for individuals who want to start new companies, which sounds ideal for those coming out of school or those looking to turn over a new leaf later in life. Without this safety net, people are less likely to branch out on their own, in turn hurting entrepreneurship and small business creation. During the campaign, then-candidate Trump said he favored an income-based repayment plan. His plan would tie repayment of student loan debt to income, the same plan long championed by debt-relief advocates.
An analysis by CNBC shows Trump's plan is, at best, partial help for low-income earners. It requires borrowers to repay their loans at 12.5 percent of their income for 15 years. While not a perfect fix, and certainly an expensive one, it provides an opportunity for people daring enough to branch out from traditional work.
Keep relief for those who have been duped.
Congress may dismantle Obama-led regulations that provided financial relief for students defrauded by for-profit institutions. This looks a lot like driving an agenda and playing politics with the lives of those less fortunate. Trump University does, of course, makes President Trump an interesting advocate for students suffering from predatory student loan practices.
If Trump makes good on his campaign promise to implement an income-based repayment plan, which he can do without the help of Congress, he’ll be helping the Gig Economy and those who rely on it. With walls and bans hogging most headlines, this is a looming issue that has the potential to create a foundation for long term change not just in Washington, but across the country.
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