Reports on a meeting of experts that considered the effect that student debt might have on entrepreneurship, including determining how to figure out if such a relationship exists and proposing policies that might facilitate entrepreneurship, should student debt indeed reduce it.

The resource reports on a gathering of “experts on entrepreneurship and experts on student debt” who were invited by the Urban Institute and the Ewing Marion Kauffman Foundation “to discuss the idea that the increasing prevalence of student debt among recent college graduates might be preventing a significant number of people who are interested in starting new businesses from doing so” (p.1). The report explains that “the September 2014 conference aimed to bring together the knowledge and analytical perspectives of the two groups to consider what we know and what a rigorous research agenda might teach us about a causal relationship between these two phenomena.

Dominant themes of the conversation included questions about the most appropriate definition of entrepreneurship and the availability of data to reliably measure changes over time in the desired activity, particularly in conjunction with demographic characteristics. Participants expressed interest in (a) developing a more formal model of the ways in which borrowing for postsecondary education would be likely to affect the probability of starting a business and (b) understanding more about how people make this decision and, when they do, what factors affect the probability of success. Participants also discussed the appropriate counterfactual. Experts on student debt were particularly concerned about the idea of comparing people with student debt to people with the same educational background but no student debt. Just eliminating debt, with no effect on educational attainment or future tax obligations, would no doubt increase individuals’ options. But the best measure of the impact of debt is a comparison of the circumstances of individuals with debt to those of individuals without debt and without the education the debt purchased” (p.1).

 (Abstractor: Author and Website Staff)

Full publication title: Does Increasing Reliance on Student Debt Explain Declines in Entrepreneurial Activity? Posing the Question, Gathering Evidence, Considering the Policy Options

Major Findings & Recommendations

Rather than determining whether increased student debt leads to reduced entrepreneurial activity, the resource outlines the next steps for figuring out if such a causal relationship exists. For example, the resource highlights possible datasets that could be used to conduct this analysis, potential ways to model the relationship, and challenges that would need to be overcome to make these calculations. In addition, the resource poses questions about what would come after a determination of a positive relationship between student debt and reduced entrepreneurial activity. “This paper…considers constructive directions for future inquiries into the issue. A central consideration is where a research agenda might lead. If a causal relationship between student debt and entrepreneurial activity were to emerge with evidence that a significant number of potentially successful entrepreneurs were discouraged by their debt obligations, what remedies would be available and desirable? The best strategies for addressing the problem would probably lie in helping individuals with entrepreneurial ambitions deal with their student debt rather than in attempting to solve the larger and less tractable problem of finding the optimal system for financing postsecondary education. The policies likely to emerge are probably constructive components of efforts to encourage entrepreneurship—whether or not student debt is a significant driver of recent trends in this activity” (p.1-2). Continuing in this direction, the resource ends by offering suggestions for policies that might incentivize entrepreneurship, including strengthening programs supporting entrepreneurs and changing student loan policy. (Abstractor: Author and Website Staff)