Starting a new business is risky and often requires the company's founders to take on personal debt. Only about half of all startups survive longer than five years, according to government data. It's especially hard for people with student loans.
Hillary Clinton, the presumptive Democratic presidential nominee, on Tuesday released a proposal to make it easier for recent college graduates to start businesses. The plan, which is part of Clinton's tech policy agenda, tackles one of the impediments to launching a new venture: student loan debt.
Clinton proposes allowing entrepreneurs to defer student loan payments while they try to get a new business up and running. Her plan would defer student loan payments for up to three years, and it would do so with no penalty: zero interest and zero principal growth.
The proposal also calls for exploring a deferral of student loans for up to as many as 20 of a startup's "early joiners" -- its initial crop of employees.
The plan would also provide forgiveness of up to $17,500 in student debt for people who launch businesses in "distressed" areas, or who create businesses that "provide measurable social impact and benefit." How that would work isn't clear. What Clinton proposed is largely an outline of an idea.
But Clinton's proposal did not arrive out of thin air. A study last year by researchers at the Federal Reserve Bank of Philadelphia found that the need to pay off student loans can indeed hold back investment in businesses.
Small businesses, which account for approximately 60% of the net employment activity in the U.S., rely on personal debt for startup capital. Student debt thus becomes a barrier, the Federal Reserve Bank paper found.
"Unlike other forms of personal debt, student debt is difficult to discharge via personal bankruptcy and thus limits a person's access to future debt until it is eliminated," the bank's researchers wrote. "As a result, individuals with significant amounts of student debt may find that they are unable to access the capital markets to finance the startup of new business ventures."
Ben Veghte, the spokesman for the National Venture Capital Association, said Clinton’s proposal is not a new idea, but is "definitely something we would support, assuming the details match the blueprint."
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