College Debt: Primed for Innovation
College debt is a crippling catch-22 that undermines the promise of social mobility endowed by a college degree. Without a college degree, individuals have few economic opportunities, but paying for college often requires that students incur an exorbitant amount of debt, which also limits their economic prospects. Paying off debt makes it less likely that an individual can save money, afford to buy a home, or put money into a reserve for emergencies. Additionally, students with educational debt are more likely to also have credit card debt, which is incredibly costly and has no benefit. This problem is exacerbated for students of color. From the Federal Reserve’s report on the Economic Well Being of US Households, black and hispanic families are more likely than their white counterparts to be behind on their debt payments, and less likely to have their loans paid off in full. When you consider the wage gap it is not surprising that it takes longer for black and hispanic students to pay off their loans.
College loan debt is not only an injustice to young people and to people of color, but it also presents a cost to the economy. Economists don’t believe that this can be described as an current or even impending crisis, but researchers are finding links between college loan debt and entrepreneurship, implying that loan debt inhibits graduates from taking the risk of starting their own businesses. Although the loss is difficult to quantify, education debt affects the national economy by reducing innovation.
Hilary Clinton wants to instate a loan forbearance program for entrepreneurs, wherein founders and founding employees are eligible to delay their loan repayment without accruing interest. An added benefit incentivizes startups that focus on improving communities, with founders eligible for loan forgiveness. The Obama administration, in addition to several other state governors, has taken steps to make it easier for student to repay their loans.
While innovation presents a compelling reason for reducing student loan debt, it had the potential to create novel solutions to this wicked problems. SoFi (Social Finance) is one such example. The company is part financing and part alumni network, wherein a college’s alumni provide the below market funding to current students, creating networking opportunities in the process. Crowdfunding, loan calculating, and information dissemination are all areas of potential innovation that could alleviate the burden of the education debt crisis. With no clear and easy alternative, and growing dissatisfaction, college funding is an untapped market waiting for creative innovators, disruptors, and problem solvers.
