A few weeks ago, the Biden-Harris administration announced plans to provide student loan relief to working-class families as they prepare to resume student loan repayments after the pandemic. Although this decision has been the subject of debate, a Ministry of Education analysis shows it could provide a lifeline to tens of millions of Americans and high streets across America.
under this to plan, the Biden-Harris administration will provide up to $20,000 in debt forgiveness to Pell Grant recipients and up to $10,000 in debt forgiveness to non-Pell Grant recipients for borrowers who earn less $125,000 per year or households earning less than $250,000. It also extends the suspension of federal student loans until December 31, 2022 and makes the system more manageable by adjusting loan repayments based on income.
These actions could have a significant impact for business owners, their employees, and the overall state of entrepreneurship. Here are three reasons to consider:
1. Student loan debt is holding back entrepreneurship: A recent investigation found that 30% of small business owners and 31% of millennial small business owners who have or had student loan debt said it had an impact on their ability to grow their business. Additionally, an Ewing Marion Kauffman Foundation investigation found that 47% of small business owners who have student loans say the pause in collection during the pandemic has allowed them to invest more in their business.
Since 1980, the total cost of four-year tuition has nearly tripled, and federal support has not kept pace. Pell grants have fallen from covering more than three-quarters of the cost for students from working families to just one-third. This caused them to take on more debt. A Department of Education analysis found that the typical undergraduate student with graduate loans had nearly $25,000 in debt. This type of debt makes it difficult not only to start a business, but also to find the capital to do so.
“Student loan debt has hampered the ability of young people under 40 to start or grow their businesses. In some cases, this has locked them into a job rather than pursuing more entrepreneurial opportunities,” said Eddie Monroy, executive director of the NextGen Chamber of Commerce.
2. This decision is important as we move towards a fairer economy: Biden-Harris administration efforts target middle- and low-income families, as well as communities of color, who are the hardest hit of the 45 million borrowers who bear the burden of $1.6 trillion in debt cumulative federal student loans. Among these borrowers, an analysis by the Ministry of Education shows that almost a third have no diploma. The burden is disproportionately heavier for black borrowers, whose median debt 20 years after graduating from college, it was found that 95% of their original student debt. This certainly has an impact on entrepreneurship, since only 2.3% of all American companies with only one employee in 2019 were black-owned.
The White House debt relief program will help borrowers who need it the most, as nearly 90% will go to borrowers earning less than $75,000 a year. Additionally, the repayment restructuring will save the average borrower more than $1,000 per year on loan repayments.
3. It’s an investment in the working and middle class – what most small business owners are for: A common myth circulating is that it is a handout for the rich or a tax giveaway (unlike the Tax Cuts and Jobs Act which gave great help to multinationals and the wealthy, but did not disproportionately help small businesses or the working class). In fact, it will help the people who need it the most. For example, a typical nurse earning $77,000 a year, married with two children, would see her monthly undergraduate payments drop from $295 to $61, with an annual savings of over $2,800. This kind of relief, which could be felt by up to 43 million borrowers, will positively impact communities and strengthen consumers’ ability to support high streets across America.
As President Biden said when he announced student debt relief, “It’s about timing. It’s about giving people a fair chance. It’s the one word by which America can be defined: possibilities. It’s about providing opportunities. This effort will give more current and future entrepreneurs a greater chance of success. To find out if this applies to you, visit White House Student Debt Relief Plan Resource Center.
In addition to these actions by the Biden-Harris administration, it is important to recognize that much work remains to be done when it comes to the cost and value of higher education. Finding solutions to ensure that students and families have understandable information about postgraduate enrollment, completion, and earnings in colleges and majors as they consider higher education opportunities could be a beginning with some bipartisan support.
As the economy changes emerging from the pandemic thanks to lessons learned and public policies, higher education will have to do the same. The Biden administration’s enactment of the US Bailout, Bipartisan Infrastructure Act, and CHIPs will transform the US economy to be more competitive for the next century. It will also require our education system to look at what has gone wrong in the past and ensure it prepares our workforce for the future.