Our viewpoint: Student loan default rates at record highs

High school graduates have long been told, “A college education is always a good investment.” Student loan debt? No problem. It’s more than offset by the increased earning potential and better job prospects from a college degree.

But, with the cost of tuition rising as fast as the youth unemployment rate, many recent graduates are finding themselves at odds with this conventional wisdom. Members of the collegiate Class of 2011, which holds an average of $24,000 in student loan debt, is largely worse off, at least financially, for having completed their four-year degree. Beyond the short-term inconvenience of living at home, this debt erodes the long-term entrepreneurial spirit of the Millennial generation. Young graduates in debt have no capacity for risk, the fundamental prerequisite for starting a business.

Peter Thiel, a Silicon Valley hedge-fund manager and the entrepreneur behind PayPal, Linked-In and Facebook, believes he has the answer to this debt-to-entrepreneurship imbalance. Through his 20 Under 20 Thiel Fellowship, Thiel is offering aspiring entrepreneurs $100,000 to develop their business ideas and innovations in the fields of biotechnology, education, energy and finance. There’s just one catch: Recipients cannot be enrolled in college during their two-year fellowship.

When the Thiel Foundation announced its inaugural class of fellows last month, it almost immediately came under attack from the higher education establishment, who called it “scary” and “dangerous.” We aren’t exactly sure what’s scary about successful business leaders mentoring the world’s best and brightest young entrepreneurs. On the other hand, we are certain of the dangerous repercussions from the country’s collective student loan debt.

When the Thiel Foundation announced its inaugural class of fellows last month, it almost immediately came under attack from the higher education establishment, who called it “scary” and “dangerous.” We aren’t exactly sure what’s scary about successful business leaders mentoring the world’s best and brightest young entrepreneurs. On the other hand, we are certain of the dangerous repercussions from the country’s collective student loan debt.

Student loan debt surpassed U.S. credit card debt last year and this year is on pace to exceed $1 trillion.

The U.S. Department of Education reported last month that the default rate on federal student loans reached 8.9 percent, the highest level in 13 years. Let’s not forget that this generation also is on the hook for the $14 trillion-plus national debt.

We applaud Thiel’s novel and audacious plan to encourage the next generation of entrepreneurs. In our view, the only controversial element of his program is the overlooked requirement that fellows consider moving to California. We asked Thiel why he would encourage any aspiring entrepreneur to move to a high-tax, high-regulation state. He told us, “California is still the place where people dream in silicon and steel. For tech entrepreneurs like the Thiel Fellows, nothing can beat the network effects of the people in Silicon Valley.”

Of course, the Thiel Foundation isn’t the only Silicon Valley-based organization offering financial incentives to aspiring entrepreneurs. Nimal Subramanian, an eighth-grader from Irvine, Calif., recently won a $10,000 award in Google’s first-ever global Science Fair. In our view, these competitions are great examples of how to sponsor innovation and entrepreneurship – without government subsidies or regulations.