August 14, 2013

HIGHER EDUCATION BUBBLE UPDATE: Student-Loan Load Kills Startup Dreams.

The rising mountain of student debt, recently closing in on $1.2 trillion, is forcing some entrepreneurs to abandon startup dreams and others, including Christine Carney of Orono, Maine, to radically reshape their business plans.

Ms. Carney, 29 years old, and her husband, John, 31, started Thick & Thin Designs, making and selling food picks in the shapes of zombies, bikes and deer antlers after a brainstorming session while she was cooking dinner. The couple, both students at the University of Maine, where he is earning a master’s degree in fine arts and she is earning her second undergraduate degree, in zoology, sell the picks for about $12 a dozen as decorative cupcake toppers.

But they chose not to purchase a laser cutter, because doing so would require them to take out a business loan—and together they have $140,000 in leftover student debt. Instead, they use a university-owned laser cutter, which limits the size of the acrylic sheets they can work with. Having the student-loan debt “is preventing me from being able to take a lot of chances or risks that are usually necessary when starting a business,” Ms. Carney says.

The average student who borrows has piled up about $40,000 in debt by graduation, including parents’ loans, nearly double the levels of a decade ago . . . Some academic experts say leftover loans are the biggest impediment to upstart entrepreneurship by those who recently received college or graduate degrees. “I mentor students all the time,” says Vivek Wadhwa, a fellow at Stanford University Law School. “The single largest inhibitor to entrepreneurship is the student loans.”

Recent graduates and college dropouts account for a disproportionate share of the founders of technology startups that have transformed the economy over the past decade, says Shikhar Ghosh, a senior lecturer at Harvard Business School. Many freshly-minted M.B.A.s “are willing to sleep on a couch for a year or two, but they can’t do it with the burden of student loans,” he adds.

Yep. Yet another reason why the current higher education system is unsustainable.