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Does student loan debt make it harder to start successful small businesses?

February 22, 2018 by Gary Stockton

According to the Kauffman Foundation business starts in the United States have been on a steady decline for the past four decades, while the cost of education has risen. In fact, as of 2017, outstanding college debt stood at 1.4 trillion dollars.

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So how does student debt impact business owners who started a business after college? In our latest Business Q&A I ask Andrea Schmalzer about her recent study of business owner student debt.

Gary Stockton: Andrea why did you to decide to study student debt for small business owners?

Andrea Schmalzer: Hi Gary we decided to take a look at student loan debt in regard to small businesses due to the fact that student loan debt has now increased to over one point four trillion dollars.

In addition to that, small business creation has been on a downward trend basically since the 1990's. So we decided to take a look and see if student loan debt was impacting new business creation and longevity.

Gary Stockton: And are there any industries where student debt has seen a significant increase?

Andrea Schmalzer: Yes. In the public administration segment, which includes prisons, research laboratories, realtors, state run businesses, we saw an increase of student debt of about 89 percent between the years 2012 and 2017.

So right now small business owners are opening their businesses with close to 60 thousand dollars in debt, when back in 2012 it was just over 30 thousand.

Gary Stockton: And were there any other interesting insights that you saw in the data?

Andrea Schmalzer: Actually yes. The biggest finding that we had was that having student loan debt didn't impact business survival. We have in our sample almost 79 percent of small businesses with student loan debt lasting five or more years. And that's compared to about 60 percent survival rate of five or more years for small businesses as a whole.

So we're seeing a definite positive trend with small business owners acquiring student debt.

 To learn more about these insights, download the whitepaper.

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