Is Student Debt the reason why Millennials Aren’t Starting Companies?

The share of young companies has declined dramatically recently. Mitch Daniels, the President of Purdue University and the former Republican governor of Indiana, says he knows why. In a Wall Street Journal opinion piece, he places the blame on rising degrees of student debt.

However the data suggest that student education loans aren’t the only cause.

The fraction of teenagers who run their own companies has been declining for pretty much two-and-a-half decades. The Wall Street Journal reported that the business-owning share of households headed by a person beneath the age of 30 dropped from nearly 11 percent in 1989 to under 4 percent in 2013 – a far steeper decline than for households overall.

Some economists think that rising education loan levels are keeping teenagers from launching companies by bathing in their borrowing capacity. A few recent studies support this argument. Study of data from the Federal Reserve’s Survey of Consumer Finances – the central bank’s effort to examine the financial conditions of American families – by two Northeastern University scholars demonstrates households with an increase of student debt are less inclined to start businesses than other households. Another paper by researchers at the Federal Reserve Bank of Philadelphia revealed that the U.S. counties with the best upsurge in student debt between 2000 and 2010 had the biggest decline in the amount of business with between one and four employees.

While these studies claim that the rising degree of student debt plays a part in the decline in rates of entrepreneurship among teenagers today, mounting student debt is unlikely to be the only real cause of low degrees of entrepreneurship among millennials. The decline running a business ownership among teenagers predates the rise in education loan debt. Education loan debt became popular in 2004, the Federal Reserve Bank of NY reported recently. However, the decline in the fraction of households headed by a business proprietor under 30 began about 15 years earlier. Moreover, data from the Federal Reserve Survey of Consumer Finances show that the amount of young business owning households declined by a larger percentage between 1989 and 1998 than between 2004 and 2013.

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As I’ve discussed before, attitudes of business ownership have changed through the years. Fewer teenagers are as thinking about entrepreneurial success today as members of their parents’ generation were if they were the same age. Other life goals, like “raising a family group” and “influencing social values,” are more vital that you teenagers today, careful academic surveys reveal.

Moreover, these changes in attitudes predate the rise in student education loans. The fraction of incoming college freshmen surveyed annually by the Cooperative Institutional Research Program at UCLA who reported that “becoming successful in a business of my very own” was “essential” or “very important” to them declined from 52.1 percent in 1988 to 41 percent in 2004. Actually, between 2004 and 2012, when education loan levels became popular, the fraction of individuals interested in achieving success at business ownership actually increased slightly to 41.2 percent. Similarly, the fraction of students who told the UCLA researchers that entrepreneurship was their intended profession declined from 3.9 percent in 1988 to 3.3 percent in 2004. (The fraction declined to 2.9 percent by 2013).

Before policymakers and pundits conclude that the rise in student education loans may be the cause of the decline in rates of entrepreneurship among millennials – and decide that credit card debt relief is the way to improve entrepreneurial activity among teenagers today – they should think about that waning interest in entrepreneurship predates the education loan crisis by a long time.

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