Young Adults Want to Be Entrepreneurs, Student Loan Debt is Stopping Them

Barbie, for better or worse, is a cultural touchstone, a reflection of pop culture values. Nowhere is this more evident than in her career choices. The doll began in the 1960s with a very clichéd list of acceptable professions for women – model, nurse, flight attendant, etc. Through the years those options grew to include paleontologist, military officer, NASCAR driver, and even a U.S. presidential candidate. This year, Barbie is taking on a different mantle, but no less important: that of entrepreneur.

Entrepreneur Barbie was launched with a website that includes profiles of women entrepreneurs and even has a downloadable brochure to help parents get their children thinking about what kind of business they could start. The entire campaign comes with the accompanying tagline: “If they can dream it, they can be it – anything is possible.”

But is it?

On the one hand, the push to expose young adults to entrepreneurship has become nearly ubiquitous. College courses focusing on entrepreneurship increased from 250 in 1985 to 5,000 in 2008. Since then the number of students enrolled in an entrepreneurship class rose from 400,000 to at least 600,000. Shows like “Shark Tank” highlight the cultural zeitgeist over entrepreneurship and the power to turn ideas into cash. The IT revolution seems to have made it easier than ever to turn an idea into a market-changing, wealth-generating product. And venture capital funding and angel investment—which grease the wheels of innovation—have surged in recent years.

And yet things aren’t nearly as rosy as these trends would seem to suggest. According to data from the Kauffman Foundation the percentage of new businesses started by 20-to-34-year-olds fell from 34 percent in 1996 to 23 percent in 2013. New business creation peaked in 2006 and then plummeted by 31 percent during the recession. Despite improvement in the economy the rate of business creation is still below what it was in 1983. It’s unsurprising then when the firm entry rate—firms less than one year old as a share of all firms—fell by nearly 50 percent between 1978 and 2011.

So what gives? How can have such a cultural push to encourage and incentivize young people to become entrepreneurs and yet have so few young entrepreneurs? Again, the answer is complicated.

Fifty-four percent of the nation’s Millennials either want to start their own business or have already started one, according to research conducted by the Kauffman Foundation. Those rates are even higher among Latinos (64 percent) and African Americans (63 percent). Polling conducted on behalf of the College Republican National Committee found that 45 percent of young adults (including 58 percent of African Americans and 64 percent of Latinos) wanted to start a business one day.

Unfortunately, those bright ideas have been snuffed out or dimmed by some troubling economic trends. First and foremost is the crushing weight of student debt. In 2014, the average student debt per recipient was $27,689, an increase of nearly $10,000 over the last six years. Such enormous debt burdens substantively impacts decisionmaking. Elaine Pofeldt writes for Forbes:

Student debt is affecting every aspect of young people’s careers, from the fields they choose to their ability to grow a business. Among young people with student debt, 40% chose work outside their major–whether they were self-employed or not, the research found. In contrast, about 20% of young adults without student debt went into fields outside their main area of study.

Student debt also seems to be discouraging young adults from taking out business loans. Among households with no student debt that had a self-employed family member, 27% said they had applied for business loans in the last five years, as of 2012. In contrast, in households with a self-employed family member that had student debt, only 17% had applied for such a loan. And who can blame them for wanting to avoid more debt?

Lingering debts from college also seem to be affecting young entrepreneurs’ ability to create jobs. Firms run by an owner in a family with student debt employed two workers in 2010. In comparison, there were about nine workers in firms run by owners without student debt, the research found.

None of this is necessarily surprising. After all, if young adults are worried about how to pay off their monthly student loan bill they are surely going to be hesitant to assume more debt to gamble on a business venture or take on more risk by hiring that additional employee. But perhaps the fact that it isn’t a surprise has goaded society into complacency. Perhaps the United States has become inured to this new normal. If so, it will be young adults’ job to shock the system so that our entrepreneurial potential doesn’t go to waste. And it’s going to take a lot more than Entrepreneur Barbie to do it.