Causes Of Student Debt

Is Student Debt the Reason Millennials Aren’t Starting Companies?

The share of young business owners has declined dramatically in recent years. 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 (http://www.wsj.com/articles/mitchell-e-daniels-how-student-debt-harms-the-economy-1422401693), he places the blame on rising levels of student debt.

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

The fraction of young people who run their own companies has been declining for nearly two-and-a-half decades. The Wall Street Journal reported (http://www.wsj.com/articles/endangered-species-young-u-s-entrepreneurs-1420246116?autologin=y)

The decline in business ownership among young people predates the rise in student loan debt. Student loan debt took off in 2004, the Federal Reserve Bank of New York reported recently (http://www.theatlantic.com/business/archive/2011/08/chart-of-the-day-student-loans-have-grown-511-since-1999/243821/). However, the decline in the fraction of households headed by a business owner under 30 began about 15 years earlier. Moreover, data from the Federal Reserve Survey of Consumer Finances show (http://www.wsj.com/articles/endangered-species-young-u-s-entrepreneurs-1420246116?autologin=y) that the number of young business owning households declined by a greater percentage between 1989 and 1998 than between 2004 and

The fraction of incoming college freshmen surveyed annually by the Cooperative Institutional Research Program (CIRP) at UCLA who reported that “becoming successful in a business of my own” was “essential” or “very important” to them declined from 52.1 percent in 1988 to 41.0 percent in 2004. In fact, between 2004 and 2012, when student loan levels took off, the fraction of people interested in being successful 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 the policy makers and pundits conclude that the rise in student loans is the cause of the decline in rates of entrepreneurship among millennials – and decide that debt relief is the way to boost entrepreneurial activity among young people today – they should consider that waning interest in entrepreneurship predates the student loan crisis by many