Reducing Student Loan Burdens for America’s Entrepreneurs

Today, President Obama announced new executive actions to make it easier for Americans to manage student loan debt, including a proposal to let upcoming graduates cap their monthly federal loan payments at 10% of their income, with any remaining debt balance forgiven after 20 years.  This improved “Pay As You Earn” plan is great news for the estimated 1.6 million borrowers who could benefit from reduced student loan payments.

Additionally, the President tasked us “with further leveraging data and technology to help provide college-bound students and parents with more comparative information about college costs and college aid so they can make more informed decisions about where to enroll.” 

Both of these actions represent good news for entrepreneurs.

Young companies fuel most new job growth across the country, so we need more talented people to take smart risks, start new businesses, and swing for the fences.  But when faced with a big student loan bill every month, it’s harder to turn away a steady paycheck and take the entrepreneurial path – especially when it can take months or years to go from idea to revenue.

This is what we heard many times during a cross-country tour to engage with entrepreneurs and identify real-world barriers, as part of the White House Startup America initiative to accelerate entrepreneurial success.  Just two weeks ago, the President’s Jobs Council recommended that the Administration take action to reduce student loan burdens and incentivize entrepreneurship – and today the President is delivering.

Imagine a would-be entrepreneur who just completed an M.B.A. and has $100,000 in federal student loans.  If her business is successful, it will create dozens of jobs after three years – but right now, during the crucial early development phase, she would work alone and pay herself a salary of $30,000.  Under the standard repayment plan, her monthly student loan bill would be about $1,150, likely forcing her to abandon her entrepreneurial ambitions and pursue a traditional job with a higher salary.  Under the President’s proposed “Pay As You Earn” plan, however, her monthly bill would be a manageable $115, giving her the opportunity to grow a job-creating business.  And if she is successful and her salary rises considerably, she will return to the standard repayment plan.

Right now, entrepreneurs with student loans can already take advantage of the Administration’s income-based repayment (IBR) plan, limiting loan payments to 15% of their income and forgiving all remaining debt after 25 years.  To spread awareness of this program, today the U.S. Small Business Administration has launched a new website walking young entrepreneurs through the process of reducing their monthly student loan payments, and the U.S. Department of Education has committed to developing new guidance for borrowers to facilitate young entrepreneurs’ use of this program. 

Also, in response to the President’s call to action to promote high-growth entrepreneurship across the country, today the Young Entrepreneur Council’s new private-sector Gen Y Fund has committed to investing $10 million in as many as 100 Millennial-generation startups, including a promise to pay down any of these young entrepreneurs’ remaining federal student loan debt over the next three years.

For entrepreneurs focused on learning apps, the President’s challenge will mean more machine-readable info to fuel new products and services to help lower the cost of higher education. It is an action informed, in large part, by our visit last week to Educause. Following our presentation, we heard directly from entrepreneurs and university technology leaders on the opportunities and challenges associated with accessing higher education data – a message brought home directly when we toured “Startup Alley” and saw firsthand the promise of open data in higher education. We look forward to collaborating with Educause and the broader higher education community on fulfilling the President’s challenge. Stay tuned!

Aneesh Chopra is U.S. Chief Technology Officer and Jim Shelton is Assistant Deputy Secretary for Innovation and Improvement at the U.S. Department of Education