Student_Debt_Entrepreneurship_body.jpgBy Cathie Ericson.

The millennial generation is typically considered one of the most entrepreneurial ever, launching new businesses from their dorm rooms and garages.

But new research is showing that an unlikely factor—student debt—is having a major impact on this generation’s ability and desire to be entrepreneurs.

According to the Kauffman Foundation, the share of new entrepreneurs in the 20- to 34-year old age group has decreased dramatically, from 34.8% in 1996 when they first started tracking numbers, to 24.7% in 2014 – the only age demographic that has consistently trended downward over time.

“We know that rising levels of student debt affect different aspects of your career path, as well as decisions to get married and buy a house,” says E.J. Reedy, director of research and policy at the Kauffman Foundation.

These two elements are associated with entrepreneurship because having wealth in the form of owning a home and having a spouse contributing to family income are tied to an increased propensity to take the risks involved in starting a business.

Student_Debt_Entrepreneurship_PQ.jpg“We’ve seen a real decline in business ownership through younger households,” he says, adding that most new business owners rely heavily on personal assets and loans to get their companies started.

The numbers for student debt are crushing and continuing to rise. In its ninth annual report on student loan debt, the Institute for College Access and Success found nearly seven in 10 graduating seniors in 2013 left school with an average of $28,400 in student loan debt, an increase of 2 percent from 2012.

According to Reedy, there has been an increase in programs designed to help people with student debt, but many are tied specifically to government or nonprofit work.

“We don’t want to artificially incentivize anyone to work in an area where they’re not suited,” he says. “We need to find solutions that allow people to move jobs and follow opportunity rather than feeling locked in because their student loan debt deferral is tied to the sector they are working in. The United States is starting to make progress here but needs more work.”

In addition to the decline in millennials starting businesses, the school debt issue has other impacts for small businesses since they are traditionally a rich source of jobs for younger people. Reedy says that small business owners who have a young workforce should be aware of this additional burden and recognize that workers with additional debt might have a need for different benefits, such as financial counseling.

“Where we get concerned is how this debt will affect the willingness of this generation to take risks,” he says. “The debt will have long-lasting repercussions that we don’t fully know.”

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