Deferred Dreams: How Student Loan Debt Disproportionately Affects Entrepreneurs Of Color

Student loan debt has changed the way people think about building businesses

By Nicole Castillo

As a 35-year-old single mom and first-generation student preparing to put herself through law school, Ramona Ortega needed student loans for more than just an education; she needed them “just to survive.”. But nine years later, she still holds what she describes as “extreme student debt” of over $200,000. Though astronomical, that number didn’t deter her from starting her dream company, which she founded to help young people facing similar situations.

As the founder and CEO of the personal financial management platform My Money My Future, she works to help millennials of color understand what their financial options are throughout their lives, and then select the options that will best align them with achieving their goals. “It’s because of the financial hardship that I have been through, [that] I started this company,” Ortega told MTV News. “I was solving my own problem.”

Ortega isn’t the only recent college graduate with a drive to start her own business, but she’s still among a certain minority. Millennials and Gen Z graduates of color are entering the job market with an “entrepreneurial spirit” — they have the vision to upend business as usual, they value mission over profit alone, and they are solutions-focused and idealistic. But fewer are pursuing entrepreneurship in comparison to older generations. The desire is there, as is the know-how. It’s the financial burden that is holding many innovators back.

This is in no small part due to overwhelming student loan debt, which in 2019, reached $1.56 trillion, sending ripple effects across the economy. Students are graduating and stepping into the workforce with financial burdens that are causing them to delay getting married, having children, saving for retirement, and buying a home. While young people are more likely to work non-traditional jobs like working for rideshare and tutoring companies and freelancing in tech and media, few take the full plunge to become entrepreneurs — the key difference being that entrepreneurs create an entirely new business model, while those in the gig economy work within the confines created for them.

This is frustrating for any number of reasons, and undoes core tenets of American capitalism that have been sold to us for decades: That we can, one day, start a company, build a business, and become our own boss. What’s more, entrepreneurs could be one of the strongest antidotes to a sluggish economy. New businesses drive innovation, increase productivity, and create more jobs.

But not everyone can take the entrepreneurship leap, which is why political heavyweights are introducing plans that would chip away at student debt, and create more opportunity for entrepreneurs of color. Legislators on the left have proposed a tax on the richest Americans and Wall Street and argued that if we can bail out big banks as we did in 2008, and other bastions of corporate America, we should be willing to bail out student debtors, too.  Senator Elizabeth Warren’s student loan forgiveness plan would eliminate up to $50,000 based on household income up to $250,000, while Senator Bernie Sanders wants to cancel all debt including undergraduate and graduate loans. Warren has also created a plan specifically targeting entrepreneurs of color, by delivering $7 billion in funding to underserved groups. Mayor Pete Buttigieg’s Douglass plan aims to invest $10 billion in entrepreneurs from underrepresented backgrounds, and defer some student loan repayment for those who decide to start a business. Senator Kamala Harris has proposed forgiving up to $20,000 of student loan debt for Pell Grant recipients who start businesses that operate in underserved communities.

Carlos Vera, the 25-year-old Founder and CEO of Pay Our Interns, a national advocacy organization working to ensure that legislative interns are paid and diverse, believes that forgiving student loan debt is not only “the moral thing to do,” but makes the most economic sense.

“People ask, ‘Where are we going to get this money?’ We just passed a tax cut of over a trillion dollars for the super rich last year. If we can do that for them, why can’t we do the same for millions of hard-working Americans?” Vera told MTV News. “Especially because we know this is dragging down our economy. Folks are not purchasing homes and starting businesses because of their student loans.”

The main factors stopping young people from becoming entrepreneurs — access to startup capital and a lack of financial stability to weather the first few years of entrepreneurship — are intensified for millennials of color. Black students carry more student loan debt than any other racial group, a fact compounded by the racial wealth gap. In the U.S., the average white family has seven times more wealth than Black families and five times more wealth than Latinx families. While Latinx students carry less debt, they are more likely to drop out because of financial barriers; have lower wages post-graduation; and are thus, more likely to default on their student loans. And the idea that a college education is a surefire route toward economic prosperity for Black and brown students must be reconsidered. The Economic Policy Institute reports that a college degree or more will not reduce the Black-white wage gap.

Many of these young people feel that student loan debt limits options in terms of jobs they can take, so graduates often opt to pursue less risky forms of employment and take whatever jobs they can to pay their bills on time. Even so, millennials of color are leading the conversation when it comes to diversifying entrepreneurship, and some see self-employment as the best option for building wealth. Millennial Black women, in particular, believe that starting one’s business is the best road to prosperity.

Rica Elysee is a first-generation Haitian American who started BeautyLynk, a company that creates opportunities for beauty professionals to connect directly with consumers, as well as build their own brand and reputation. As the company’s founder and CEO, 33-year-old Elysse knows that these opportunities are indispensable for her clients to pay back their debt — but she is still quick to admit that college debt can be “stifling.”

“It’s changed the way people think about building businesses or even if they have a shot at building one,” she told MTV News.

That was certainly the case for Katia Alcantar, the 29-year-old co-founder of the legal advice app Text A Lawyer, who carries $85,000 in student loans.“With one of my student loans, I have paid 20 percent of the loan and none of that has been on the principal,” she told MTV News. Faced with $1,000 monthly payments, her debt is so significant that it has prevented her from investing in her own company, which connects attorneys with clients 24/7 via text for legal advice.

Because Alcantar wasn’t alone in her endeavor, she was able to take some risks: Her co-founder had the financial means to bootstrap the project, thus enabling her to quit her job and move her family from Texas to Oregon to join the company. Not everyone can afford to make those kinds of decisions, though, and for those still strained by their student loans, debt forgiveness proposals have become a beacon of hope.

The burden of student loan debt, however, is not as simple as the government eliminating your balance from Sallie Mae or Navient; it’s also about reforming the entire cost of college and predatory loan systems and ensuring livable wages for all.

Many of these issues, 32-year-old Omama Marzuq believes, can be solved by investing in entrepreneurs.

“Being your own business owner, you are creating opportunities and growth for your community,” the entrepreneur and mentor for E for All: Entrepreneurship for All told MTV News. “Entrepreneurs can hire people in their communities, create internships, and fund scholarship opportunities.” It’s a cycle that can provide young entrepreneurs with the hope that their work is worth the toil, and proof that while risks can feel solitary, success is not received alone.