I spend a lot of time mulling over the problems that have been brought about by the rise of student debt -- the millions of financial lives shattered by needless defaults, the ruined credit scores stopping young people from buying homes. These are urgent issues.
You know what I really couldn't care less about? Whether or not someone who spent $90,000 on an MBA gets to start a gluten-free cereal company -- which appears to be one of the chief concerns expressed in The Wall Street Journal's evidence-light piece on how student debt is making life difficult for entrepreneurs. It's called: "Student Loan Load Is Killing Startup Dreams." A better title would be: "Getting a Wildly Expensive Graduate Education Won't Be Good For Your Shoe-String Start-Up Business."
One of the structural problems with reporting about student debt is that virtually all the juiciest anecdotes that make for good storytelling involve graduates who bear little resemblance to the typical troubled borrower. Liberal arts grads with with six figures of debt? They make great copy, but they're also outliers. As a result, the catchiest articles tend to treat us to a parade of exceptional, and not altogether relevant, sad-sack cases. The Journal's piece is no exception. Here's the start:
The rising mountain of student debt, recently closing in on $1.2 trillion, is forcing some entrepreneurs to abandon startup dreams and others, including Christine Carney of Orono, Maine, to radically reshape their business plans.
Ms. Carney, 29 years old, and her husband, John, 31, started Thick & Thin Designs, making and selling food picks in the shapes of zombies, bikes and deer antlers after a brainstorming session while she was cooking dinner. The couple, both students at the University of Maine, where he is earning a master's degree in fine arts and she is earning her second undergraduate degree, in zoology, sell the picks for about $12 a dozen as decorative cupcake toppers.
But they chose not to purchase a laser cutter, because doing so would require them to take out a business loan--and together they have $140,000 in leftover student debt. Instead, they use a university-owned laser cutter, which limits the size of the acrylic sheets they can work with. Having the student-loan debt "is preventing me from being able to take a lot of chances or risks that are usually necessary when starting a business," Ms. Carney says.
While I, too, lament Christine and John's inability to crank out industrial-scale batches of Brooklyn-appropriate cupcake decorations, I think we can all agree that a couple who are simultaneously pursuing a second bachelor's degree in Zoology and an MFA are, at best, a cautionary tale about the perils of hipsterism, not a reflection of our economic age.
Eventually the piece tries to build its case with a bit of expert commentary. Innovation guru and Stanford University Law School Fellow Vivek Wadhwah says he mentors students "all the time," and that the "single largest inhibitor to entrepreneurship is the student loans." Shikhar Ghosh, a senior lecturer at Harvard Business School, says that brand new MBAs "are willing to sleep on a couch for a year or two, but they can't do it with the burden of student loans."
Wadwah and Ghosh are right. Being in debt discourages some people from taking risks. But maybe it should be should be acknowledged somewhere that foregoing two year's salary to attend a top-five business school might not be the soundest decision for wannabe startup founders?
The piece does include one sort-of unfortunate tale. It's about an entrepreneur who gave up on his company about six months sooner than he would have liked, thanks to the weight of $40,000 in undergraduate loans. But then we get this:
Sara Gragnolati, 36, accumulated more than $90,000 in federal and private loans, most while earning an M.B.A. from Babson College in 2010. Her Boston-based company, Cocomama Foods Inc., now sells its gluten-free hot cereals in about 300 stores and is getting ready to launch a second product line, crunchy dried cereals made of grains such as quinoa, millet and flax. But while business is expanding, Ms. Gragnolati still isn't drawing a salary. Although she has been deferring payments, she must begin repaying $200 monthly on her private student loans in November. She hopes she can either continue to defer the $559 monthly payments on her federal loans, or perhaps make reduced income-based payments. Figuring out the best way to manage student loans is difficult, because loan programs "don't really recognize my entrepreneurship," she says.
This story actually undercuts the premise of the piece. Gragnolati seems to have attended an expensive private business school, created a cereal company, drawn no salary in three years, and still managed to not default on her student loans, while apparently finding ways to feed and clothe herself. If anything, this seems to be evidence that it is possible to be an entrepreneur while carrying a huge student debt load.And lo', check out this tale of woe:
Levi Belnap and Alex Pak graduated from Harvard Business School in May with $250,000 in student loans between them. The pair have received $200,000 in seed capital for FindIt, which helps users locate emails and documents on their iPhones. With loan payments coming due this fall, they will soon have to seek additional funding. "It's basically forced us down a path, for better or for worse because of that debt burden," says Mr. Belnap, 29, who is married and has two young children. "We have real responsibilities that we have to face."
Well that's some real Eugene O'Neill-level tragedy right there. Two heroes with Harvard MBA's are forced to get another investor for their startup so that one of them can feed their children while pursuing their crazy dream of...creating another email app. We'll call it "A Long Day's Journey Into Diluted Equity." Philip Seymour Hoffman can play the lead when it hits Broadway.
Again, the student debt explosion has hurt a lot of lives. But the people truly affected tend to be the sorts of folks who don't make it onto the front page of The Wall Street Journal, like dropouts and low-income adults who make the mistake of borrowing to go to a for-profit school. Worrying about the impact of grad school loans on dudes gunning for private equity dollars seems a bit beside the point, no?