Hillary Clinton's student loan initiative might be the superpower the US economy needs

Getty Images/David McNew

If the United States economy was a movie, student loans would be the super villain—or, at the very least, a founding member of the Suicide Squad.

Over the past decade or so, outstanding student loan debt has grown faster than a toxic algae bloom, surpassing a whopping $1.3 trillion. Saddled with increasingly scary levels of debt, young professionals have decreased spending and put off major purchases, such as buying a home, fueling an ongoing drag on the economy. Inability to pay student loan debt can even lead to mental health issues and physical illness, which can have a major impact on employee productivity and business performance.

So it's no surprise to see headlines about the latest student loan victim du jour: the young entrepreneur. The crime? Recent data suggests that student loans are preventing would-befounders from starting businesses. When businesses aren't being started, jobs aren't being created. And when jobs aren't being created, well, you guessed it—the economy suffers.

Of course, this isn't a new phenomenon. In fact, some have been sounding alarms for a while. But when Democratic presidential candidate Hillary Clinton announced a new proposal to alleviate student loan debt for entrepreneurs, it lit a much-needed fire under this topic.

As a strong supporter of young entrepreneurs (my company, SoFi, sponsors its own student loan-focused Entrepreneur Program), I’m more than happy to keep the discussion going. In order to assess Clinton's proposal, let's take a step back and review the connection between student loans, entrepreneurs, and the U.S. economy.

Student Loans and Entrepreneurs: Not Exactly a Love Story

In his testimony before the U.S. Senate in July, John Lettieri, co-founder of the Economic Innovation Group, said, “Millennials are on track to be the least entrepreneurial generation in recent history." Citing a 2016 Small Business Administration report, he noted that less than 4% of today's 30-year- olds are self-employed, compared to 5.4% of Gen Xers and 6.7% of Baby Boomers surveyed at that same age. He also noted that young people contributed half the number of startup launches in 2014 (18 percent) than they did in 1996 (35 percent).

Getty Images/David McNew

These are surprising stats for a generation that's often painted as being more entrepreneurial than its predecessors. But when you consider that the number of student loan borrowers increased 89% and the average loan balance increased 77% between 2004 and 2014, the picture becomes much clearer. “Even when student debt is bearable, it can still shape a life, nudging young people toward jobs that guarantee a steady salary," says Derek Thomson, senior editor at The Atlantic.

This is a big problem, and not just because a sizable chunk of America's largest living generation is unable to pursue their entrepreneurial dreams. The shortage of young founders has contributed to a sharp decline in the overall startup rate over the past 30 years. Fewer startups means fewer established companies, fewer jobs, and more competition among jobseekers—all of which contribute to the wage stagnation that's been causing a “Millennial wealth gap" for some time now. It also means lower productivity, an important predictor of economic growth for the U.S. economy.

And that's getting people's attention.

Getting to Happily Ever After

When it comes to solving the student loan crisis, there's certainly no shortage of ideas—in fact, student loan refinancing is one of those ideas in action. And while the presidential candidates have put forth a number of potential solutions, Clinton' latest proposal is particularly intriguing because of its focus on the endangered young entrepreneur.

The initiative, unveiled last month as part of the Democratic candidate's broader technology program, would allow borrowers to defer federal student loan payments for up to three years while they build their businesses. In addition, borrowers who start new businesses in distressed communities would be eligible for up to $17,500 in student loan forgiveness after five years. “The goal is not just to create jobs and encourage entrepreneurship amongst millennials," says Rana Foroohar, Time Magazine's economic columnist, “but also to help boost enterprise creation in general."

Of course, it’s yet to be seen whether a plan like this could entice more young entrepreneurs to start businesses. But given the likely connection between growing student loan debt and declining startups, it’s a good bet that something like this could have a positive impact. In fact, we’ve seen evidence that allowing borrowers to put loans on hold through our Entrepreneur Program has been just the incentive that some of our members need to take the leap into entrepreneurship.

Helping young entrepreneurs start new businesses just might be the superpower the U.S. economy has been waiting for.

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