$1 Trillion Debt Crushes Business Dreams of U.S. Students

“It deters an entrepreneurial spirit when you already start four steps behind the starting line,” said Sherick. “The student debt increases the risk for an entrepreneur like me and makes it harder to expand new business, get loans and thus hire new people.”

Former students hobbled by a collective $1 trillion in education loans can be hindered in expanding or forming small businesses and creating jobs for themselves and others. While self-employment among those 65 years old and over increased 24 percent in 2010 from 2005, it fell 19 percent among individuals 25 and under in the same period, according to the Small Business Administration.

“The burden of student debt probably places pretty big constraints on your viable options after graduation,” said Dane Stangler, director of research and policy at Kansas City-based Kauffman Foundation, which focuses on supporting entrepreneurship. “With more student debt and stricter bank lending, it really hinders the ability of students to take risks, start a company.”

Almost 23 percent of 9,500 respondents stated they had put off starting a business because of monthly student debt payments owed to private lenders.

Katie VanDyk, who graduated from Tulane University Law School in New Orleans last year, said her student loans of about $180,000 put going into business full time on the back burner. “You can’t look at the big number every day, you just chip away at it,” said VanDyk, who now works as a lawyer in Austin, Texas. “It is intimidating because it is going to be about 20 years before I pay it off.”

“The consequences of not meeting those loan obligations are very severe,” said Rohit Chopra, the CFPB’s student-loan ombudsman. “Once they become late, or delinquent or in default, that makes it more challenging for them to access personal credit in order to build their businesses.”

While a bankruptcy can wipe out housing and credit-card debt, there’s no forgiveness on student loans. Since a 2005 change in bankruptcy laws, student debt can’t be discharged, barring reasons such as severe and permanent disability.

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