Changes to the federal student loan program stand to help future entrepreneurs, but can go further to support students from low-income families and marginalized communities.
In yesterday’s Fall Economic Statement, the Canadian federal government announced that interest on all student and apprenticeship loans will be permanently waived.
And earlier this week, the government increased the zero-payment income threshold on student loans from $25,000 to $40,000.
These announcements come on the heels of a new student debt program introduced in the U.S. in August. The program forgives up to $20,000 of student debt for Pell Grant recipients and up to $10,000 for non-Pell Grant recipients. Single borrowers who earn less than $125,000 ($250,000 for married couples) qualify for the debt forgiveness program.
These student loan program changes can potentially create increased levels of entrepreneurship and innovation in the U.S. and Canada.
Entrepreneurship is not only a risky venture with uncertain pay-off, it’s actively unwelcoming to those who come from marginalized communities. Those who hold student debt become more likely to choose an occupation that offers stable hours and pay, as opposed to something as risky as becoming an entrepreneur.
The relationship between debt and entrepreneurship has been extensively studied. So has the underrepresentation of inventors and entrepreneurs in the United States (and similarly, Canada).
New student loan changes are good for entrepreneurs, but we need targeted support for marginalized communities
Changes to the federal student loan program stand to help future entrepreneurs, but can go further to support students from low-income families and marginalized communities.
In yesterday’s Fall Economic Statement, the Canadian federal government announced that interest on all student and apprenticeship loans will be permanently waived.
And earlier this week, the government increased the zero-payment income threshold on student loans from $25,000 to $40,000.
These announcements come on the heels of a new student debt program introduced in the U.S. in August. The program forgives up to $20,000 of student debt for Pell Grant recipients and up to $10,000 for non-Pell Grant recipients. Single borrowers who earn less than $125,000 ($250,000 for married couples) qualify for the debt forgiveness program.
These student loan program changes can potentially create increased levels of entrepreneurship and innovation in the U.S. and Canada.
Entrepreneurship is not only a risky venture with uncertain pay-off, it’s actively unwelcoming to those who come from marginalized communities. Those who hold student debt become more likely to choose an occupation that offers stable hours and pay, as opposed to something as risky as becoming an entrepreneur.
The relationship between debt and entrepreneurship has been extensively studied. So has the underrepresentation of inventors and entrepreneurs in the United States (and similarly, Canada).
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U.S. vs Canada: Student loan reform edition
Mitigating financial risk is where the U.S. student debt relief program comes into play for prospective entrepreneurs from low-income families—it primarily benefits Pell Grant recipients, and 80 percent of these recipients have family incomes below $40,000. This program eases the student debt burden, which can potentially tip the scale towards entrepreneurship for those who may have once been reluctant due to financial instability.
The entrepreneurial landscape also stands to increase in diversity. The majority of Black students (58 percent) receive Pell Grants. Native American and Hispanic students (51 and 47 percent, respectively) are also recipients. Although certainly not a silver bullet, these grants can help level the playing field for those who have been historically disenfranchised from the innovation and entrepreneur economy.
To encourage future entrepreneurs, Canada should follow the U.S., but differently.
The Canadian context of student debt is fairly dissimilar to the U.S., in both tuition amount and repayment structures. The vast majority of Canadian universities remain public, and tuition for domestic students1 is comparatively reasonable and accessible. While many still hold student debt, it is nowhere near the crisis level as in the U.S., and similar intervention as the U.S. loan forgiveness program is unlikely to have the same effects.
However, there are policy levers in Canada that can go further to address inequities in entrepreneurship faced by communities made marginalized in Canada. Given the comparably lower levels of student debt here, we can likely achieve similar objectives with more direct interventions, such as introducing community-specific scholarships to ensure students need not incur debt to pursue further education. In addition, broad-based considerations of equity in funding for entrepreneurship, like equity-based funding for women entrepreneurs will go a long way in equalizing access to the innovation economy.
Measures announced by the federal government do little to address inequity, and may even exacerbate it. We must not lose sight of the goal of providing equitable access to our innovation economy and the relationship between debt and entrepreneurship. Policy design that reflects the institutional differences between Canada and the U.S. student loan and repayment structures is essential to designing effective and targeted interventions.
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1International students are not often eligible for student debt in the traditional sense where the Canadian government has jurisdiction over.
For media enquiries, please contact Nina Rafeek Dow, Marketing + Communications Specialist at the Brookfield Institute for Innovation + Entrepreneurship.
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