Is a college degree necessary to start a business? Whether entrepreneurs need college degrees to succeed, or whether the time spent earning that diploma is better spent actually launching a business, has been an ongoing debate as long as I can remember. But with college costs and student debt skyrocketing, thereâ€™s a new consideration in the debate: Is student debt preventing would-be entrepreneurs from starting businesses?
Deep in debt
Thereâ€™s more than a grain of truth to the idea. A person who graduates with $30,000 in student loans is 11% less likely to start a business than a person who graduates with no student debt, reports The Hidden Cost of Financing Education: Can Student Debt Hinder Entrepreneurship?, a study by Karthik Krishnan, an associate professor of finance at Northeastern University.
And $30,000 is a fairly average student debt load. As of 2018, 42 million student loan borrowers have student loan debt of $100,000 or less. Most of these (12.4 million) have debt between $10,000 and $25,000. But over 2 million student loan borrowers have student loan debt of over $100,000.
The 20s and 30s have long been considered the best time of life to start a business. In your 20s or early 30s, you probably donâ€™t have a mortgage to pay, children to raise, or a spouse to fit into the equation. But today, you are likely to have looming student loan paymentsâ€”unlike Generation Xers or baby boomers, who generally paid off any student debt they had in a few years.
With prospects for employment also dim, todayâ€™s young adults are between a rock and a hard place. Ironically, with more college-level entrepreneurship courses and entrepreneurship degrees than ever before, getting a college degree could seem even more helpful for starting a business.
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Startup or school?
When deciding whether you really need a college degree to be your own boss, take these factors into account:
- What kind of business do you have in mind? If youâ€™ve got your heart set on a professional services business, you probably do need that degree. On the other hand, if you want to start a construction company, an apprenticeship program or work experience might teach you all you need to know.
- How else can you get the business education you need? Business skills, like how to manage bookkeeping or the basics of marketing, will help you growâ€”but you can get those elsewhere than at a four-year college. Check out local community college or adult education classes, or courses and advice offered by SCORE and SBDCs. (Disclosure: Both organizations are clients of my business.)
- What other advantages can you get from going to college? Yes, college connections can help your startup succeed (thereâ€™s a reason so many startup wizards went to Harvard). Â Taking out student loans might be worth the cost if theyâ€™ll pay off in valuable contacts.
- How much money do you have and whatâ€™s the best use for it? If you have capital for either college or a startup, add up the numbers. How much will launching a business cost? How much will college cost? And how will your parents react if you decide to start a business and skip college?
- Is now the best time? Some businesses are best launched by a younger person; for others, you need a bit more life experience. Perhaps this is one reason entrepreneurs in their 20s are less likely than older business owners to build high-growth companies, according to a paper Age and High-Growth Entrepreneurship.Â Would waiting to start your business benefit it in the long run?
Whether to go to college or straight into business startup is a choice only you can make. Just be sure that you consider your options very carefully before you take the leap.