Will Hillary Clinton’s Student Loan Deferment Plan Spur Entrepreneurs?

Election 2016
Posted By Donna Fuscaldo on July 19, 2016 at 1:10 pm
Will Hillary Clinton’s Student Loan Deferment Plan Spur Entrepreneurs?

This part isn’t new: Small businesses form the backbone of the U.S. economy, with new ventures adding 3 million jobs per year. This part is: Many new enterprises are started by millennials saddled with lots of student loan debt. Presumptive Democratic presidential nominee Hillary Clinton wants to help by deferring student loan debt for these entrepreneurs. Clinton’s plan, part of her overall education platform, would defer student loans repayment for entrepreneurs for up to three years and give partial loan forgiveness to those who set up shop in depressed neighborhoods.

As part of Clinton’s new agenda on technology and innovation, which she released last month, Clinton said the idea is geared toward “breaking down barriers and leveling the playing field for entrepreneurs and innovators who are launching their own startups.” Under the program, student loan deferrals would go to the founders of the enterprise and the company’s first 10 to 20 employees. Entrepreneurs who open businesses in distressed communities or start enterprises that provide a societal impact or benefit could be eligible for student-loan forgiveness of as much as $17,500. The loan forgiveness would kick in after five years.

“A smaller proportion of millennials today are starting new ventures as compared to their predecessors,” Clinton said when unveiling her plan. “This is not for a lack of desire—more than half of America’s millennials say they want to start a business—but barriers like student debt and a lack of access to credit are holding young people back.”

Student loan debt prevents new ventures from being launched

There’s no question student loan debt has a negative impact on millennials, who are putting off starting businesses, purchasing homes, getting married and starting families because of loans they took out to pay for college. The nation is staring at more than $1.3 trillion in student loan debt, and solving that problem is the focus for lots of groups and politicians.

It’s not surprising Clinton wants to help entrepreneurs with their student loan debt. The U.S. economy depends on innovation to maintain its status in the world, and startups often drive that innovation. What’s more, Freelancers Union found in a study that freelancers, many of them entrepreneurs, contribute $715 billion to the economy each year. “With the surge of start-up culture in the U.S. and that 38% of millennials are freelancers, I do think this policy will likely resonate with young voters repaying student loans,” says Andrew Josuweit, CEO of Student Loan Hero. “Entrepreneurs are huge drivers of employment and innovation in the U.S.”

For young entrepreneurs and small business owners, student loan debt layers another burden on their ambition. Many of the entrepreneurs already are tapping their life savings, borrowings and every cent they can raise to get their enterprise off the ground and can’t afford a student loan bill each month. Because having money to invest and time to spend on new ventures often forming the biggest barriers to getting a business off the ground, Steven Aldrich, chief product officer at internet doman provider GoDaddy, thinks Clinton’s proposal is good step in the right direction. “Student loan payments holds entrepreneurs back because it reduces the money available to invest in their small business,” he says. “It’s especially important to give a few years’ grace period to recent graduates with new ideas allowing them to build a sustainable business.”

While deferments could encourage students to follow their dreams of starting a business, it will take varying times to get a business to the point where it generates income and provides a sustainable salary for the entrepreneur. That means three years may not be enough for the entrepreneur.

And if the business isn’t successful, which is often the case, it may be even harder for graduates to start repaying their student loans, Aldrich says. “According to the Small Business Administration, close to 66 percent of small businesses will survive their first 2 years. For the 34 percent of businesses who don’t, it may be difficult for their founders to get right into paying their student loans back,” he says.

Does the Clinton proposal go far enough?

While any help with student loans will be welcome, Natalia Abrams, executive director of Student Debt Crisis, says Clinton’s plan, because it uses the term ‘entrepreneurs,’ excludes a whole group of people who start and maintain businesses but may not fall under the entrepreneur umbrella, which is often reserved for tech companies.

“Most ‘entrepreneurs’ are small business owners and they are vital to our overall economy,” she says. “We have seen a decrease in business owners due to student loan debt, so in that sense Clinton’s plan is beneficial; conversely, not everyone who went to college is interested in starting their own business, so in that sense it doesn’t help nearly enough borrowers.”

Donna Fuscaldo
Donna Fuscaldo is a freelance journalist hailing out of Long Island, New York. She has also written for Bankrate.com, Glassdoor.com, SigFig.com, FoxBusiness.com, Business Insider, Dow Jones Newswires and the Wall Street Journal.

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