Student Loans

Nearly 1 in 2 College Students Are Putting Entrepreneurship Dreams on Hold Due to Student Loans

Despite the high interest in entrepreneurship, student loans are keeping college students from starting a business. Here's a breakdown of what students feel to be the biggest barriers to their entrepreneurial endeavors.

Student loan debt is keeping almost half of soon-to-be college graduates from becoming entrepreneurs. We surveyed current college students graduating in the next 12 months to learn about their entrepreneurial aspirations and what barriers they were facing with wanting to create a business.

According to Kauffman Indicators of Entrepreneurship, entrepreneurship among 20- to 34-year-olds has declined from 34.3% in 1996 to 25.5% in 2017. Meanwhile, college debt has continued to increase significantly over the past two decades, with the class of 2017 leaving college with an average of $28,650 in student loans. This debt has burdened students and influenced many of their decisions, including whether to start a business.


Key findings:

  • Soon-to-be graduates with student loans want to start a business: 76% of college students surveyed graduating in the next 12 months with student loans want to start their own business.
  • Students loans are keeping soon-to-be graduates from starting a business: Almost half of these soon-to-be graduates (47%) cited student loans as a roadblock to starting a business, followed by not knowing how to get funding (33%) and needing more experience (31%).
  • A little over one-half of students in public colleges feel that student loans are the biggest barrier to entrepreneurship: Compared to 46% of students in private colleges, 35% in two-year colleges and 48% in private for-profit schools.
  • College students in the Northeast (56%) are struggling the most with student loans impacting their decision to start a business, while those in the South are affected the least (39%).

Student loans are the biggest barrier to entrepreneurship

According to ValuePenguin's research, the barriers to business ownership overwhelmingly point to student loans, as 47% of soon-to-be graduates with student debt say it's keeping them from starting a business after graduating. Other graduates say they don't know how to get funding, need more experience, think it's too hard to start a business and don't know what type of business to start. Respondents could select more than one answer in the survey.

Students' Barriers to Starting a Business

Entrepreneurial students in public colleges are the most discouraged by student loans

More than half of students in public four-year colleges view student loans as a barrier to starting a business, and many (40%) are also unsure of how to get funding. Similarly, students from almost all school types saw student loans as the main obstacle stopping them from starting a business—except for students from two-year colleges, who said their main barrier was understanding how to get funding.

  • Students in private schools are the most interested in starting a business: 82% of four-year private college students and 82% of for-profit private college students have wanted to start a business, while only 73% of four-year public college students and 70% of two-year college students want to try entrepreneurship.

Here is a chart showing the variation of entrepreneurship barriers among the different school types with the barrier students selected the most in bold:

Barriers to starting a businessPublic 4-year collegePrivate 4-year college2-year collegePrivate, for-profit college
Student loans51%46%35%48%
Not sure how to get funding40%21%39%17%
I need more experience31%31%29%26%
It's too hard17%21%15%22%
I'm not sure what type of business I want to start22%11%11%4%
Other1%3%3%4%

Student entrepreneurship barriers by region

Aspirations of starting a business and the reasons keeping students with loans from starting a business vary by region. However, in all regions, student loans were the main barrier against being able to start a business. Students in the Northeast seemed to be the most hindered by student loans, with 56% citing them as a barrier to starting a business.

  • Soon-to-be graduates out West are most likely to start a new business: 79% have considered it, compared to 78% in the South, 74% in the Northeast and 70% in the Midwest.

Below, we've separated the data by regions to give you a better idea of the differences and similarities across the United States with the barrier most students selected in bold:

Barriers to starting a businessNortheastWestMidwestSouth
Student loans56%53%50%39%
Not sure how to get funding31%33%36%33%
I need more experience30%29%28%33%
It's too hard17%16%23%18%
I'm not sure what type of business I want to start11%16%20%17%
Other1%4%1%3%

How to improve your student loan situation

Across the country, student loans have become a consequential part of higher education, influencing decisions both during school and after leaving. If you're looking to start a business and student loans are holding you back, there are ways to improve your situation and make the loans less influential in your life choices and options.

Even with the burden of student loans, if you prepare properly, you can still start your own business. And it is possible to start one soon after graduating, if you truly believe now is the best time to start.

Here are some tips to help you pay off your student loan debt and free up money and time for you to start a business:

1. Review your repayment options. Many students and graduates are not aware of the various repayment options the federal government offers, especially income-driven repayment plans. These repayment plans allow you to set your monthly payments as a percentage of your income. After 20 to 25 years of repayment, you can qualify for loan forgiveness.

In contrast, private lenders don't generally offer income-driven repayment plans, but many allow you to choose from three or four different repayment options to fit your needs. Whether you have federal loans, private loans or both, talk to your student loan servicer to discuss the best payment option for you.

2. Start making payments during school or your grace period. If you can, it may be a good idea to start making student loan payments during school to reduce the amount of interest that will accrue and leave you with less debt when you graduate. If that isn't possible for you, consider making payments right after you graduate, during your grace period.

Starting payments early may help ease the burden of your debt and allow you to lower your monthly payments and start your business. However, think about whether that money would be best used as an investment in your business or other assets.

3. Take advantage of tax deductions and credits. When you start paying off your student loans, you may qualify for the student loan interest tax deduction, which allows you to reduce your taxable income by up to $2,500. The loans must have been used to pay for qualified education expenses for either the taxpayer, their spouse or a dependent. Your interest deduction amount will depend on your income and how much interest you paid.

If you are still in school, there are two other tax credits you can take advantage of: the American opportunity tax credit and the lifetime learning credit. The American opportunity tax credit allows students to claim up to $2,500 paid toward qualified education expenses and the lifetime learning credit is worth up to $2,000 for qualified tuition and related expenses. Your credit amount will be based on your income and how much you paid toward education, and you won't be able to use both credits at the same time.

4. Refinance high-interest student loans. If you have student loans with high interest rates, consider refinancing with a private lender for a lower rate. However, keep in mind that refinancing federal student loans with a private lender means losing important repayment protections and options. Consider refinancing only if you get a much lower interest rate and you're sure you can make all of your loan payments.

If you decide to look into refinancing, compare your options before deciding on a lender. You'll want to get the lowest rate possible without compromising your repayment, deferment and forbearance options. Consider improving your credit score before applying for student loan refinancing to increase the odds of getting a lower rate.

This survey was conducted from April 15 to May 6, 2019. We collected 618 responses from college students across the country who are graduating college in the next 12 months and are financing their education with student loans. Our entrepreneur hopeful sample, taken from the overall sample of students, consisted of 468 soon-to-be college graduates who want to start their own business.

Madison Miller

Madison is a former Research Analyst at ValuePenguin and focuses on student loans and personal loans. She graduated from the University of Rochester with a B.A. in Financial Economics with a double minor in Business and Psychology.