Is student debt the reason millennials aren't starting companies?
Posted 8.5.15Scott Shane, PhD, A. Malachi Mixon III Professor of Entrepreneurial Studies explores the reasons why the share of young business owners has declined dramatically in recent years.
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, he places the blame on rising levels of student debt.
But the data suggest that student loans aren’t the 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 that the business-owning share of households headed by a person under 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 believe that rising student loan levels are keeping young people from launching companies by soaking up their borrowing capacity. A few recent studies support this argument. Examination 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 shows that households with more student debt are less likely to start businesses than other households. A separate paper by researchers at the Federal Reserve Bank of Philadelphia revealed that the U.S. counties with the greatest increase in student debt between 2000 and 2010 had the largest decline in the number of business with between one and four employees.