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No Small-Business Loans for Those Mired in Student Debt

July 7, 2015
Small Business
No Small-Business Loans for Those Mired in Student Debt Story
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Small-business loans are a tough get when you’re drowning in student debt.

In fact, many would-be entrepreneurs are carrying such enormous student debt burdens that they’re failing to secure financing needed to get started, according to a study by the Federal Reserve Bank of Philadelphia and the Penn State Smeal College of Business.

That has led to significantly fewer small businesses in locations around the country where residents have considerable student-loan debt, the researchers say.

The economic impact is significant, says Brent Ambrose, a professor at Penn State Smeal College of Business and a co-author of the study.

“Given the enormous growth in the use of student debt in recent years,” Ambrose says in a news release, “the issue of whether it may impact future small-business formation is becoming critically important.”

The report, “The Impact of Student Loan Debt on Small Business Formation,” looked at student debt across the U.S. by county from 2000 to 2010 and found that a jump in student debt in an area typically led to a 14% decline in the creation of small businesses that have one to four employees.

Student debt has been drawing growing attention from media and policymakers in recent years as more young Americans are seen wrestling with bigger financial burdens. Total student loan debt is now roughly $1 trillion, having nearly tripled from 2004 to 2013, according to the Penn State Smeal College of Business.

The report, which was co-written by Larry Cordell and Shuwei Ma of the Federal Reserve Bank of Philadelphia, first came out last year and was recently updated, according to the college.

To get more information about funding options and compare them for your small business, visit NerdWallet’s best business loans page. For free, personalized answers to questions about financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.

Benjamin Pimentel is a staff writer at NerdWallet, a personal finance website. Email: [email protected]. Twitter: @benpimentel

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