How Hillary’s New Proposal Could Impact Entrepreneurs With Student Loan Debt

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Today, Hillary Clinton announced her “Initiative on Technology & Innovation” proposal. A big part of this announcement: student loan deferment and forgiveness for entrepreneurs.

Here are the key details of her proposal:

No interest on new entrepreneurs’ student loans for three years

Clinton’s proposal points out that fewer millennials are starting businesses today compared to previous generations and suggests that student loans may be to blame. A potential fix: allow entrepreneurs to defer student loans interest-free for up to three years.

This proposal may include not only the company founder but also the first 10-20 employees. However, it’s not yet clear from her proposal exactly how this would work.

Why this matters

While it’s currently possible to put student loans in deferment or forbearance for a variety of reasons, simply being an entrepreneur isn’t one of them.

Additionally, deferment doesn’t currently cover interest charges for unsubsidized loans. But according to Clinton’s proposal, her program would, in fact, allow interest-free deferment to prevent student loan balances from ballooning.

Overall, the goal seems to be to give entrepreneurs the freedom to focus both their time and financial resources on their business rather than student loan payments. Millennial borrowers currently pay on average around $351 per month for student loans.

Student loan forgiveness for social businesses

In terms of student loan forgiveness, Clinton’s proposal would forgive $17,500 of debt after entrepreneurs spend five years in business.

Clinton’s student loan debt forgiveness proposal for entrepreneurs centers around social enterprises and “new businesses that operate in distressed communities.”

While a bit narrow in scope, Clinton’s proposal looks to bolster ventures that aren’t simply motivated by money but rather a desire to have a social impact.

Why this matters

Currently, the fastest any borrower can achieve any form of student loan forgiveness is 10 years through the Public Service Loan Forgiveness Program. This initiative is slated to forgive debt starting in 2017.

Clinton’s proposal would bring borrowers faster relief in five years. This would be especially helpful to borrowers who might have to wait 20+ years to get forgiveness on Pay As You Earn or Income-Based Repayment programs.

Although $17,500 in student loan forgiveness might only cover a portion of a borrower’s debt, the current average student loan debt is $37,000. That means Clinton’s proposal would forgive about half the average borrower’s debt.

It could also equal what the average borrower would expect to pay over the course of five years of repayment if enrolled in the standard 10-year student loan repayment plan. In other words, pursuing a new business wouldn’t set back entrepreneurs in terms of student loan repayment.

One potential hurdle: businesses must operate for five years before becoming eligible. However, many startups don’t survive this long. A potential concern is what happens to entrepreneurs’ debt when their business falls short of this milestone.

But, since this is simply a proposal, we can expect more detail and clarification should this ever be enacted. This proposal also requires both Clinton winning November’s presidential election as well as the passage of any law changes that require Congressional approval.

This is in addition to Clinton’s $350 million college proposal that she’s already announced. That plan would include increased aid for students, a refinancing option, and more to help bring down the cost of a college degree.

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