Washington, D.C.— Today, House Small Business Committee Chairwoman Nydia M. Velázquez (D-NY) introduced a bill to establish a student loan debt forgiveness and deferment program for entrepreneurs. The Supporting America’s Young Entrepreneurs Act of 2021 seeks to lower one of the most prominent barriers to starting a business, outstanding student loan debt.
“Our nation is currently facing the dual crises of rising student loan debt and declining entrepreneurship,” said Chairwoman Velázquez. “High levels of student loan debt have helped make Millennials the least entrepreneurial generation in modern history. Today, debt is weighing down young people to the point where they are less likely to start businesses that provide good jobs and form the foundation of local economies.”
In 2021, outstanding student loan payments reached $1.7 trillion, eclipsing credit card debt and auto loan debt. A growing body of evidence shows that this debt burden is stifling rates of business startups. Economists have found that higher levels of student debt hurt overall business income and employment among business owners. For example, researchers at the Federal Reserve of Philadelphia found that an eight percent increase in total student debt in each county leads to 70 fewer new small businesses.
The crisis is also fueling persistent racial disparities in entrepreneurship. On average, Black and Hispanic students are more likely than white students to rely on student loans to pay for their education. These higher debt levels often lead to less appetite for taking risks associated with starting a small business among prospective entrepreneurs, helping maintain the racial wealth gap.
Velázquez’s bill would offer debt relief to student debt holders that launch businesses in economically distressed areas. The bill would provide three years of interest-free student loan deferment and up to $20,000 in forgiveness for the founders of small businesses in economically distressed areas. Employees working at startups would also be able to access $15,000 worth of forgiveness regardless of their location. Under the legislation, The Internal Revenue Service would not consider debt forgiveness as taxable income. Additionally, the bill would mandate creating a new Young Entrepreneurs Business Center at the Small Business Administration to manage the program.
“America’s decades-long slide in entrepreneurship has the potential to hamper our recovery from the COVID and extend the economic fallout from this crisis,” said Chairwoman Velázquez. “If we want young people to play a meaningful role in the entrepreneurial ecosystem that powers our economy, we must reduce the burden of student loans.”
The bill is cosponsored by committee members Rep. Judy Chu (D-CA); Rep. Dwight Evans (D-PA); Rep. Andy Kim (D-NJ); and Rep. Dean Phillips (D-MN) Chairman, Subcommittee on Oversight, Investigations, and Regulations.