I have a lot of student debt. More than $250,000 worth, in fact, even though I graduated more than four years ago. I have so much student debt that until recently my monthly payment didn’t even cover the interest.
How did I get here? In 2011, I entered NYU’s Stern School of Business with a significant scholarship, but also as a single mother of two, a first-generation college student, a former Pell Grant recipient, and the kind of striver that our national parlance loves to embrace, but our systems fail to actually support. So I piled on the debt because it was easy to access and I had mouths to feed. I told myself it would all be worth it in the end.
Now, I’m not so sure it was.
These days, I’m the CEO of a national nonprofit and make way more money than my parents ever did—but not nearly as much as many of my MBA classmates. I fork over a ton of cash every month—far more than my mother’s mortgage payment—toward this heap of student debt, and yet the balance grows. My anxiety about this is lower than a few years ago, mostly because I’ve gotten used to it, but my credit score is so low that I may never be able to buy a home even though I’ve never missed a payment on anything in my life.
Business school is a great idea if you think that you want to work in one of three fields: investment banking, consulting, and brand management. These are fields that are otherwise nearly impossible to break into, and they will likely pay sufficiently well that the investment in an MBA will be net cash positive in the long-run. Business schools know this and tailor their calendars, processes, and sales pitches to these industries. If that’s you, go sign up for an MBA today.
But more and more schools are pitching themselves on entrepreneurship and social innovation, and pursuing those careers by entering business school is not only a bad deal for students, but a dangerous one.
These are fields that require a high-degree of risk tolerance and frankly are very difficult to teach well in a classroom environment. When business schools suggest they prepare students for these careers, it is purely a marketing play: there are no real incentives for MBA programs to change when Sallie Mae, Morgan Stanley, and BCG are their biggest underwriters. There is nothing about credential-seeking that strikes me as entrepreneurial.
Unless students are already wealthy, the resulting debt of business school may actually kill their chances of becoming an entrepreneur.
Debt constrains choices. When the average Wharton or Sloan graduate is saddled with six-figures of debt, it’s no wonder that new business formation is at 40-year lows, What’s worse, fewer and fewer people under age 35 aspire to ever own a business, and many of them directly cite debt as the reason.
We can all think of a handful of prominent young entrepreneurs minted by HBS, Wharton, and Stanford. It’s great that some folks found co-founders and resources at these schools that helped them get started. But upon digging, it’s clear that these entrepreneurs are also nearly all from affluent families. They did not have to do the same calculus as friends of mine who started down an entrepreneurial route after B-school only to take a job at a big corporate the moment they became a parent.
Student debt is one of the biggest barriers to entrepreneurship and innovation in the United States, and instead of finding solutions to this problem, we are doubling down on a broken system. We have more than 1.3 trillion in student loans as a nation, and most graduate school loans have interest rates north of 7%—nearly twice the prevailing mortgage rates, despite the fact that student loan debt cannot be discharged in bankruptcy but a mortgage can. Tuition only continues to climb, and more and more of our national budget is dependent on student loan revenue
Now, I am really, really lucky. If I stay the course, the federal government is set to wipe away my loan balance six years from now. But there’s some uncertainty on this front. It seems that this program is going away—which is going to push the best doctors into for-profit hospitals, lawyers out of public interest law, and folks like me into management consulting. The opportunity cost in public service is huge, but in many ways I’m more worried about for-profit entrepreneurship.
Entrepreneurs are our job creators, and our national myth-makers. Our baby-boomer parents took the leap, but we millennials are shying away. They didn’t face the massive costs of education we do, and they had major supportive institutions to help them get there. The United States need a large-scale national investment in new business creation, or it will cede major ground to China and even Sweden.
Amy Nelson is the CEO of Venture for America.