The millennial generation is living in what one could call a paradox as it relates to entrepreneurship. On one hand, the millennials could be the new great generation. They are the most educated cohort in the history of the United States, they have broad exposure to entrepreneurship in higher education, and popular culture is filled with stories of their entrepreneurial successes, from the kids just getting started to millennial uber-entrepreneurs like Facebook’s Mark Zuckerberg. On the other hand, millennials could be the new lost generation. They are heavily saddled with student debt, weak career prospects, and for all this expanded entrepreneurship exposure, most measures of entrepreneurship among younger workers are stagnant to falling.
Thus emerges the millennial entrepreneurship paradox — is this the generation whose entrepreneurship propensities will unleash the next wave of economic growth, or will this generation’s entrepreneurship potential fizzle?
Among the many trends affecting the entrepreneurial promise of millennials, student debt has been a particularly prominent issue. Although we cannot yet infer any causal relationships, rising student debt levels have, to an extent, coincided with falling entrepreneurship rates among young people. Intuitively, a relationship between the two makes sense. Entrepreneurs need capital to start new businesses, and young people with student debt lag far behind on accumulating net worth.
Over the last year the Kauffman Foundation has spent time considering what might be some of the great unknown drivers of the slow-down in entrepreneurship that we and others have highlighted. And while the list of potential triggers is long, among younger workers we are increasingly drawn to the topic of student debt, and the potential negative role this debt could be having on entrepreneurship. To be clear this is an area of research where little exists. But as the cost of education has risen it’s becoming increasingly the norm for some of our most promising college graduates to have significant levels of student debt. So, in the course of the next year we’ll be doing some initial research into the long-term implications of student debt, particularly as it relates to entrepreneurship.
Our founder, Ewing Marion Kauffman, long ago recognized the need for students to complete a collegiate education and that cost was a major hurdle toward that choice. But it is only in the current environment of escalating college costs and student loan levels that we are becoming suspicious of a more direct link between debt and entrepreneurship. The cost of higher education has been rising for decades, and the cost of in-state tuition and fees at public institutions has risen more than 50% in the past 10 years.
There is little doubt the current generation of new graduates has a tremendous amount of student debt hanging over its head. While some policy solutions have been put forward to place a Band-Aid on the problem of rising debt — such as income-based repayment — we believe there remains room for considering how even these programs could be handicapping the millennial generation of entrepreneurs.
So will millennials be our most entrepreneurial generation, being credited with “unprecedented” innovation and entrepreneurship, or will they be the least entrepreneurial yet, with falling participation among new entrepreneurs, looming student debt and weak early career prospects? It is still unclear how this seeming paradox will play out in reality. But the future of how millennials will be remembered — as a lost generation or the new great one — will rest on it.
E.J. Reedy is research director at the Ewing Marion Kauffman Foundation and Arnobio Morelix is a research analyst at the Kauffman Foundation.