How COVID-19 Stimulus Impacts Student Entrepreneurs

March 28th, 2020

3-min read

The novel coronavirus is having a dramatic impact on all college and university students - including student entrepreneurs. Several elements in the recently passed economic stimulus legislation including changes to student loans, unemployment benefits, small business loans, and higher education industry funding, may help these young founders.

As the business-freezing impacts of the novel coronavirus and government-enacted responses continue to have a seismic effect on experienced startup founders and their companies, the same is true for student entrepreneurs. Nearly all college campuses have physically closed, and classwork has shifted online. Working from home or other non-traditional locations, they are physically separated from the wealth of entrepreneurial resources traditionally available to students - from events and programming, to mentors, pitch competitions, networks, and more. 

Entrepreneurs of any age and at all stages should think first about the health and wellbeing of themselves and their employees and be deliberate about the steps necessary to respond, react, and survive the next few months.

Economic Stimulus Package

Support appears to be incoming from the $2 trillion stimulus bill, signed into law on Friday, March 27th, 2020. Though this legislation is primarily aimed at helping unemployed American workers, coronavirus-impacted industries, and healthcare providers, it also includes several elements that may be useful to student and recently-graduated entrepreneurs. 

Four of the most critical components to young founders include:

01. Paused Federal Student Loan Payments 

With debt frequently identified as the top deterrent to entrepreneurship in the youngest professional generation, any relief in this area may have the most significant impact. Democrats appear to have been unsuccessful in their efforts to get student loan forgiveness included in the bill. Still, the win here for student entrepreneurs is an automatic pausing of federal loan payments (interest-free) through September. This pause represents a critical expansion of a similar, existing grace period following graduation. 

Now, entrepreneurs who are just a few years out of school and feel their monthly loan payments prevent them from taking an entrepreneurial chance, may just get the necessary reprieve.

Also important for student entrepreneurs to be aware of, before the stimulus bill’s passage, the Department of Education had already announced a waiver on student loan interest during this time. In addition, it allowed borrowers to individually pause payments if needed by contacting their loan servicer. And finally, the Treasury Department planned to suspend withholding payments from default borrowers federal income tax refunds for at least 60 days.

02. Expanded Unemployment Benefits (Including Freelance Workers)

Periods of layoff-induced unemployment - which may become more common for student employees, recent graduates, and young professionals - can be the environment in which an individual launches a successful entrepreneurial endeavor. With unemployment benefits extended to 13 weeks and enhanced for four months, this temporary, expanded financial assistance may provide just the runway student entrepreneurs need to launch their idea into a revenue-generating business.

Importantly, with research showing that nearly half of Generation Z work as freelancers in the ‘gig economy’ (and the high frequency at which this kind of work translates into entrepreneurship), is it even more critical and impactful that these expanded unemployment benefits extend to this type of worker.

03. Funding for Higher Education Institutions

Though described by Ted Mitchell, president of the American Council on Education, as ‘woefully inadequate’, the stimulus bill appears to include $14 billion in funding for local school systems and higher education institutions. In addition, the legislation earmarks $1 billion for schools that serve a high percentage of minority, low-income and first-generation college students.

This higher education industry assistance will become critical to colleges and universities that are increasingly announcing pay cuts, hiring freezes, and declarations of financial exigency. (Some schools may look to nonessential extracurricular entrepreneurship spending as an area for future savings.) Within the past two weeks, Moody’s Investors Service downgraded its outlook for the higher ed industry from “stable” to “negative” and S&P Global Ratings moved its outlook to negative for private student housing projects connected to U.S. colleges and universities. To ensure the programs and services utilized student entrepreneurs continue operating, this funding is critical.

04. Loans to Small Businesses (Including Student Businesses)

For student startups that need a little capital infusion to maintain payroll, rent, mortgage interest, utility payments, and weather the coronavirus storm, the stimulus bill will include loans from a $425 billion fund controlled by the Federal Reserve and a $75 billion fund available for loans to specific industries (ex: hospitality and airlines).

The emergency period these loans will be available ends July 1 and exact application and distribution processes remain unclear, but would include both the Small Business Administration (SBA) and likely, community banks. The Paycheck Protection Program, which will distribute $350 billion in loans would be partially forgiven if a startup continues to pay its existing workers through the duration of the crisis.

The SBA will share ongoing developments and describe existing opportunities for assistance, including the Economic Injury Disaster Loan Program, SBA Express Bridge Loans, and other guidance on their Coronavirus (COVID-19): Small Business Guidance & Loan Resources webpage.

A fundamental shock to daily life and the economy caused by the coronavirus will require innovative thinking as as well as the above mentioned resources for nearly every entrepreneur. In addition, for those founders still in school, it's more important than ever to leverage every possible experience and network. These are the opportunities that will set them apart as they launch their ventures and enter the labor market.

#Early Stage