The Big Story: Student loan program heads to court, impacting future entrepreneurs
Student loan debt is back in the spotlight this week—leaving millions of borrowers in uncertainty—and remains a hurdle that keeps many would-be founders from joining the startup ecosystem. During Thursday’s oral arguments in the case over whether the Department of Education can use provisions of the Higher Education Act to justify large-scale debt forgiveness, the judges from the 8th U.S. Circuit Court of Appeals seemed skeptical about the Biden administration's authority to implement its blocked student debt relief plan. The Saving on a Valuable Education plan, designed to reduce monthly debt payments and provide quicker loan forgiveness, has been on pause since early September, and the Department of Education indicated that borrowers enrolled in the plan may have their debt in forbearance for more than six months. Student loan debt deters many potential founders—especially underrepresented founders who already face significant challenges in accessing needed capital—from entering the innovation ecosystem.
Startup founders say that policymakers should act. Student loan forgiveness "should be a priority," MITO Material Solutions CEO Haley Marie Keith told us. "Entrepreneurs are contributing to the public good by driving economic growth," and policymakers should minimize the barriers founders face, including student loans. For would-be founders, student debt discourages them from taking the risk of launching a startup, as they are burdened by loan repayments. The loss of potential startup founders due to student loan burdens ultimately stifles innovation in the U.S. economy and prevents job creation. The problem is especially pronounced for underrepresented founders; Black women are the fastest-growing group of entrepreneurs, but they are also disproportionately impacted by the student loan debt burden.
Policymakers must prioritize student loan forgiveness and create a relief plan that supports borrowers, including startup founders and employees. With millions waiting as lawsuits work their way through the courts, Congress should take action to provide relief and ensure borrowers aren't left in limbo.
Policy Roundup:
Publishers allege copyright infringement against AI startup. Dow Jones and the New York Post are suing Perplexity, a generative AI search engine, claiming that the company infringed on their copyrighted news content by using it in training data for its AI models. Public interest voices and industry groups have long argued that the inclusion of copyrighted content in training data should be allowed under the law, with many pointing to the fair use doctrine, which protects transformative unauthorized uses of copyrighted material. (A startup can only be protected by fair use if it's already involved in a lengthy and expensive lawsuit, so Engine has argued that startups' ingestion of copyrighted material as part of training data shouldn't even require a fair use defense.) If courts say that ingesting copyrighted content as part of training data is considered infringement, only the AI companies that can afford to enter into expensive licensing agreements with online publishers—which could include anyone who creates content online—would be able to innovate.
Appeals court won’t rehear case about liability for algorithmic recommendations. The U.S. Court of Appeals for the Third Circuit said this week that it won’t reconsider an earlier decision that could open Internet platforms up to lawsuits over recommended user content. In August, the court ruled that a lawsuit against TikTok could proceed despite Section 230, a foundational Internet law that allows Internet platforms to get lawsuits over user content dismissed at an early stage. In a major departure from Section 230 jurisprudence, the court said Section 230 doesn’t prevent an Internet platform from being sued over content it recommended, rather than merely hosted. Internet platforms—including those operated by startups—use algorithms to sort, promote, and demote user content to create healthy and relevant online spaces, and Section 230’s liability shield allows them to do so without risking ruinous legal costs. The court’s rejection of TikTok’s appeal likely tees up the case to go to the Supreme Court.
White House releases memo on securing AI competitiveness. President Biden on Thursday issued a memo on U.S. leadership, national security, and trustworthiness in AI. The memo fulfills requirements from last October’s Executive Order and directs agencies on key activities, like ensuring access to compute, attracting foreign talent to the U.S., and building necessary energy and data infrastructure. These are critical elements of advancing U.S. competitiveness in AI, and Congress should separately act to pass legislation to provide AI resources and build the AI talent pool.
European antitrust chief nominee to continue aggressive pushback on acquisitions. In responses to the European Parliament this week, Teresa Ribera, likely the next to lead EU competition policy, vowed to scrutinize more acquisitions, including those involving startups. Acquisitions are an important exit path for startups, and they promote the building of knowledge, recycling of talent, and flow of capital through the ecosystem. U.S. antitrust enforcers are adopting a more European approach to merger control, and given the extraterritorial reach of European enforcers, the tack the EU takes is poised to impact U.S. startups.
AI Essentials: What is compute and how is it measured? We continued our series on AI Essentials this week with a new blog post examining compute—the necessary hardware that enables AI models to train on data, process information, and generate predictions. Compute’s high cost and scarcity limit startups' access to the resources needed for efficient performance. Understanding the role compute plays in developing AI systems is essential for informing policy discussions and shaping regulations that impact innovation.
Startup Roundup:
#StartupsEverywhere: Philadelphia, Pennsylvania. After working in the financial sector for over 20 years, Mical Jeanlys-White founded her own company, WealthMore, a wealth tech with a focus on tackling a key financial barrier—wealth building and management. Her company leverages technology to connect everyday Americans with accessible wealth management services, aiming to provide wealth creation for all. We sat down with her to discuss her journey in raising capital, navigating tax policy, the evolving role of AI, and more.
