From Silicon Valley to Silicon Beach, California is the most prominent hub in the United States for technology entrepreneurs and a breeding ground for the next generation of startups. However, the recent tuition increase at schools within the UC system could stifle, rather than foster, continued growth.
Hefty debt and high payments
With our nation’s student loan debt reaching nearly $1.3 trillion and affecting over 44 million American college students, the ramifications of increasing tuition may end up being detrimental to many people’s idea of the American Dream. As sixty-eight percent of college graduates nationwide face massive student loan payments of more than $300 a month, student debt can have a crippling effect on the startup community, where the biggest factor for success is often cash flow and seed capital.
While Californians luckily graduate with some of the lowest average student loan debt in the country, this year the University of California system is planning a 2.5 percent tuition increase with an additional 5 percent fee increase. Tuition costs are rising because state funding is decreasing. Unfortunately, with tuition increases comes more loans and, therefore, more debt potentially hindering young entrepreneurs from pursuing startup ventures.
Higher costs of living in tech hubs
In addition to spending hundreds of dollars a month towards student loan payments, many startups face extreme cost of living increases in major tech hubs like Silicon Valley, where the total cost of living is 62.6 percent higher than the national average. Though Los Angeles’ booming tech hub Silicon Beach, now the nation’s third-ranked startup ecosystem, offers a slightly more affordable nest to budding ventures, it’s cost of living still ranks 50 percent above the national average. The weight of student debt paired with inflated costs such as these can make it nearly impossible for the next generation of entrepreneurs to get their businesses up and running.
These factors directly correlate with the decreasing population of young entrepreneurs willing to take the financial risk necessary to start their businesses. Research has shown that start-up growth has been in decline since 1996, falling from nearly 35 percent of young people pursuing entrepreneurship to 25 percent in 2014. This slump is especially troubling in a society that thrives on innovation and a culture that prides itself on being on the cutting edge of technology development.
