As of 2016, the average college student owes over $37,000 in student loan debt.
Overall, about 70% of America’s recent college graduates have some form of student loan debt.
That equals $1.2 trillion.
This mountain of debt diminishes the purchasing power recent graduates have.
Graduates can’t afford to buy their house or car.
That, in turn, prevents economic growth from happening, while also reducing the quality of life for college graduates.
When it comes to college-educated entrepreneurs, the figures are just as bleak.
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68% of recent graduate entrepreneurs used student loans to fund their education.
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Some were able to borrow less than $17,000.
At the same time, this same group of students are also more likely to borrow nearly $60,000.
This places aspiring entrepreneurs at both extremes on the student loan spectrum.
If you’ve recently graduated and plan to pursue an entrepreneurial career, you can expect not to earn enough, or to make a lot.
Typically, you won’t fall somewhere in between.
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New entrepreneurs are more than three times as likely to have an annual salary of less than $16,000.
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However, they are also more likely to earn more than $76,000 over college educated workers in traditional roles.
A study conducted by Young Invincibles shows that there are some fundamental ways in which higher student loan debt affects young entrepreneurs.
Student Loan Debt Negatively Affects Career Opportunities
Student loan debt heavily impacts career opportunities for college-educated entrepreneurs.
The findings from Young Invincibles study concluded:
- 63% of self-employed entrepreneurs who were in repayment went into deferment or forbearance, while 61% of those who weren’t self-employed faced the same situation.
- Around 30% of independent entrepreneurs had to work more than one job thanks to their student loan debt.
- Almost 50% of independent contractors and 40% of those not self-employed had to settle for a career they didn’t want due to high amounts of student loan debt. 30% of the independent group responded that the job they took was not in their field.
High Amounts of Debt = High Amounts of Stress
Of course, debt carries a lot of stress with it, particularly when you consider the strain on career opportunities afforded to new entrepreneurs.
Let’s take a look at some Young Invincibles’ statistics on stress when it comes to student loan debt:
- 45% of self-employed entrepreneurs said that their student loan debt caused them significant amounts of weight.
- 25% of independent young entrepreneurs responded that they weren’t able to pay for their necessary monthly expenses. This is a 3% increase compared to graduates employed in traditional roles.
- Almost 20% of self-employed have had to consult their parents or their in-laws to help pay their loans. Those who weren’t self-employed didn’t follow far behind, though, at about 13%.
- About 18% of independent survey participants reported that they were living with their parents or in-laws for as long as four years after graduation. This is 4% higher than their counterparts who are employed in traditional roles.
- 21% of new entrepreneurs said they did not think their university degrees were a sound investment. Compare this to the 16% of those employed in traditional roles who answered the same way.
What To Do About It
This information is all well and good to have, but what can be done to reverse or help the situation?
Essentially, the conclusion of the study states that we won’t have a clear answer unless we do some more digging.
However, The Young Invincibles’ study does offer a few insights into the financial future of debt-laden entrepreneurs:
- Higher student loan debt, while having clear effects on entrepreneurial opportunities, is not the only factor when it comes to declines in entrepreneurship. Race, gender, family backgrounds, and wealth should also be considered, but more research is needed to comprehend the correlation fully.
- Companies such as TaskRabbit, Uber, and Etsy provide entrepreneurs with more and new career opportunities. However, nearly half of the survey participants in the Young Invincibles’ study reported that they hadn’t even set up a website for their businesses.
- More research must be conducted on this subject to understand the borrowing habits of graduate entrepreneurs better –, particularly whether or not they are well-planned. This research will help financial aid policymakers produce smarter policies for those who are seeking careers in entrepreneurship.
As time goes on and more research is conducted, an answer to the rising problem of student debt and entrepreneurship will hopefully present itself.
Tonya says
I would like to share that this student debt and wage problem is not just for young people. I am in my 40s and started nursing with an associate degree RN. My job was eliminated and I was made to obtain a BSN for employment. I accrued over $40000 in student debt and yes I have a job but am making half of what I was in 2008 and now have student loans to pay! This low wage for occupations with new degrees and student loan payments are absurd. If wages aren’t going to raise soon it’s time the government forgives student loan debt. This is crazy robbing educated hard working citizens like this. It’s like I paid for a degree that has no value?