Last week I attended Google's Big Tent event. I may write about some of the panels later, but I want to focus on how I flummoxed the Minister for Universities and Science - David "Two Brains" Willetts
(Photo by Paul Clarke)
I posited to the Rt Hon Gentleman, that student loans were crippling the high-tech workforce of the country. When I graduated, I was unable to get a bank loan for a technology start-up due to the level of student loan debt I had accumulated. With universities now charging £9,000 per year, graduates would be around £30k in debt before they even started to think about setting up a company.
I graduated a decade ago and I'm still paying off my loan.
I'll let the tweets tell the story.
interesting q on student debt and not being able to get startup loans. first response 'inherited'. #bigtentuk12
— marquess of meetings (@adamamyl) May 23, 2012
— Cathy Eglington (@cathyeglington) May 23, 2012
Thorny question about student debt to David Willets - hampering creditworthiness hence start-up growth #bigtentuk12
— Sam Roots (@samgroots) May 23, 2012
Willets seems like he wants to say banks shouldn't take student debt into account for start-up loans, but keeps deflecting #bigtentuk12
— Nick Pickles (@nickpickles) May 23, 2012
#bigtentuk12 MP given stage time to elude the question which was not about the definition of student loans, but the impact of the same.
— Ivo Burum (@citizenmojo) May 23, 2012
#bigtentuk12 Minister trying to do mental math in public very difficult
— David E Alexander (@dejalexander) May 23, 2012
I wasn't the only one who found it amusing that David Willetts couldn't do mental arithmetic when trying to calculate loan repayment rates.
Essentially, my points - which Willetts successfully evaded - were:
- Student debt - and its repayment - negatively impacts graduates who want to get a loan to start a high-tech business.
- Start-ups can't afford to hire top-flight talent. Because 9% of any earnings over £21,000 go to repaying the debt, graduates ask for a higher salary.
Willetts was, theoretically, right. Banks should look at ability to repay. Someone on £25k is "only" paying back £360 per year. However, there is a snag. Student Loan debts aren't wiped out during bankruptcy. If your dotCom idea crashes and burns, you're going to have to pay the bank back through any spare income. Indeed, your income can be used for three years to help pay your bankruptcy debts, if you can afford it.
But your student loan has to be repaid first.
So you can see why a bank would be reluctant to lend to a graduate.
Most of my knowledge around this comes from chatting to grad, and talking to recruiters. I'd love to see some hard data on whether banks (informally) look at student loan debt when evaluating business loans.