''People normally have only a certain amount of 'debt capacity'.''

#Money

Mon, May 26th, 2014 07:00 by capnasty NEWS

According to the New York Times’ Phyllis Korkki, student loans not only have a detrimental effect on the students themselves forced to take them, but also on the entire economy. Reportedly, people with student loans are “less likely to start a business of their own,” as people only have a “certain amount of ‘debt capacity’” that they can handle.

When students use up their debt capacity on student loans, they can’t commit it elsewhere. “Given the importance of an entrepreneur’s personal debt capacity in financing a start-up business, student loan debt, which cannot be discharged via bankruptcy, can have lasting effects later in life and may impact the ability of future small-business owners to raise capital,” the study says.

Considering that 60 percent of jobs are created by small business, “if you shut down the ability to create new businesses, you’re going to harm the economy,” Professor Ambrose said.

Student loan debt also appears to be affecting homeownership trends. According to research by the Federal Reserve Bank of New York, fewer 30-year-olds in general have bought homes since the recession, but the decline has been steeper for people with a history of student loan debt and has continued even as the housing market has recovered.

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