President Obama unveiled a plan earlier this week to lessen the burden of student loan debt, which will reach $100 billion for the first time this year, according to the Federal Reserve Bank of New York.
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The president’s plan will accelerate an existing plan to cap student loan payments at 10% of income to start in 2012 instead of 2014. It will also allow those with split loans from the Direct Loan program and the Family Education Loan Program to consolidate their debts into a single monthly payment. Borrowers that opt for this plan will get a 0.5 percentage point cut in their interest rate.
Steadily rising tuition costs has led to students to borrow twice as much than they were a decade ago. Some argue this massive student loan debt prevents this generation of would-be entrepreneurs from starting businesses.
But what do current entrepreneurs think about Obama's plan and the idea that could lead to more innovation and small businesses?
Treatment Diaries, Berryville, Va.
Amy Ohm, president and CEO of Treatment Diaries, a social networking platform for those living with, or caring for someone with a disease, feels debt is intended to be the responsibility of the borrower, and it is not government's responsibility to forgive it.
"We are fortunate in this country to have the freedom to take financial risks; however, regardless of the outcome, we are beholden to the burden and equally free to celebrate a successful outcome, she said. While Ohm did not have student loans to repay upon graduation, she had other debts and repaid them, allowing her to now borrow in order to grow her business.
"Being an entrepreneur provides great purpose and appreciation for the value of money along with the need to lean on debt to grow while realizing a plan to establish a healthy balance sheet. This balance fuels the entrepreneurial spirit and provides structure, which is a building block for success.”
She added that paying back debt and understanding the value of lending is key to becoming successful.
"Forgiving debt taints this exciting opportunity and creates a false sense of what is possible and in reach with hard work and perseverance. Take personal responsibility for everything you pursue, rely on wisdom to do good and meaningful things, and commit yourself to the effort it takes to overcome the obstacles which often stand in front of success."
Your Virtual Assistant, Sarasota, Fla.
Michelle Mangen, owner of Your Virtual Assistant, a virtual assistant service specializing in social media management, bookkeeping and administrative duties for small businesses, said she feels Obama's plan will help stimulate the economy. For those current on their loan payments, this will create some extra cash flowing into the lagging economy.
However, Mangen said she is unsure if the move will create new entrepreneurs.
"While money is most certainly a factor for most people who are contemplating starting their own business, it is only one of many factors. Not everyone is cut out to be a business owner, so regardless of a reduction in student loan payments, some individuals will probably never consider becoming self employed.
Mangen had student loan debt after graduation but paid it off before launching her business, but said it wouldn’t have stopped her from creating her company.
"If anything would have stopped me it would have been my mortgage—and even that didn’t hinder me."
Tate's Bake Shop, Southampton, N.Y.
Kathleen King, owner and founder of Tate's Bake Shop, said the plan will help to facilitate the many challenges young people are facing today attempting to enter the job market.
However, like Mangen, she is unsure that it will create entrepreneurial growth.
"I don’t feel that this plan will spark entrepreneurship, as I feel the spirit of an entrepreneur would be better serviced by offering low-cost financing to young people with great ideas, but not a lot of collateral," she said.
As a young entrepreneur in the 1980s, King said she was able to start her business without the burden of student debt so many are facing today.
"I went to a SUNY College, which was affordable at the time, and paid for it myself with money I was able to earn over the summer," she said. "Back in 1980, I started my business with $5,000, which I saved the summer after graduating college and borrowing $10,000 from family. I was unable to get a loan at the time."