By Rieva Lesonsky
Whether entrepreneurs need college degrees to succeed, or whether the time spent earning that diploma is better spent actually launching your business, has been an ongoing debate for as long as I can remember. But with college costs and student debt skyrocketing, there’s a new consideration in the debate: Is student debt preventing would-be entrepreneurs from starting businesses?
Deep in debt
There’s more than a grain of truth to the idea. A person who graduates with $30,000 in student loans is 11 percent less likely to start a business than a person who graduates with no student debt, reports The Hidden Cost of Financing Education: Can Student Debt Hinder Entrepreneurship?, a study by Karthik Krishnan, an associate professor of finance at Northeastern University.
And $30,000 is a fairly average student debt load. As of 2018, 42 million student loan borrowers have student loan debt of $100,000 or less. Most of these (12.4 million) have debt between $10,000 and $25,000. But over 2 million student loan borrowers have student loan debt of over $100,000.
The 20s and 30s have long been considered the best times of life to start a business. In your 20s or early 30s, you probably don’t have a mortgage to pay, children to raise, or a spouse to fit into the equation. But today, you are likely to have looming student loan payments–unlike Generation Xers or baby boomers, who generally paid off any student debt they had in a few years.
With prospects for employment also dim, today’s young adults are between a rock and a hard place. Ironically, with more college-level entrepreneurship courses and entrepreneurship degrees than ever before, getting a college degree could seem even more helpful to starting a business.
Startup or school?
When deciding whether you really need a college degree to be your own boss, take these factors into account:
- What kind of business do you have in mind? If you’ve got your heart set on a professional services business, you probably do need that degree. On the other hand, if you want to start a construction company, an apprenticeship program or work experience might teach you all you need to know.
- How else can you get the business education you need? Business skills like how to manage bookkeeping or the basics of marketing will help you grow—but you can get those elsewhere than at a four-year college. Check out local community college or adult education classes, or courses and advice offered by SCORE and SBDCs. (Disclosure: both organizations are clients of my business.)
- What other advantages can you get from going to college? Yes, college connections can help your startup succeed (there’s a reason so many startup wizards went to Harvard). Taking out student loans might be worth the cost if they’ll pay off in valuable contacts.
- How much money do you have and what’s the best use for it? If you have capital for either college or a startup, add up the numbers. How much will launching a business cost? How much will college cost? And how will your parents react if you decide to start a business and skip college?
- Is now the best time? Some businesses are best launched by a younger person; for others, you need a bit more life experience. Perhaps this is one reason entrepreneurs in their 20s are less likely than older business owners to build high-growth companies, a recent MIT study showed. Would waiting to start your business benefit it in the long run?
Whether to go to college or straight into a business startup is a choice only you can make. Just be sure that you consider it very carefully before you take the leap.