Looking to start a new business but feel weighed down by student debt? Don’t give up on your entrepreneurial dreams just because of a few thousand, tens of thousands, or even a hundred thousand dollars of debt.
According to Gallup, there are approximately two million U.S. graduates who delayed starting a business due to educational debt in between 2006 and 2015. But don’t let that discourage you. Regardless of your financial situation, sometimes it pays to take the plunge and pursue that start-up despite all the odds.
“Looming student loans make the leap to entrepreneurship very difficult,” says David Klein, CEO and co-founder of online student lender CommonBond. But “those determined to do it can figure out how.”
The total outstanding loan debt right now is over $1.3 trillion and growing at a rate of $2,726 per second according to a debt clock calculator by Market Watch. According to the College Board, the total debt growth has also averaged at about eight percent per year. This means that for the 63 percent of students that graduate with some financial debt that averages out to about $25,000 each when graduating from four-year public universities, or even higher for those graduating from private non-profit institutions.
Even slow growth of student debt is impacting the frequency of new business start-ups (defined as a business with four or fewer employees). 2015 research by the Philadelphia Federal Reserve indicated that in areas where there was a student debt increase of only 2.7 percent over a decade, there was still a 17 percent decline in new business formation.
All good business ideas need proper planning for daily execution and are worth pouring your heart and soul into. So if you’re considering pressing forward, there are a few things you need to know about your student loans. These tips can make the transition from indebted student to business owner that much easier.
Consolidate your loans, carefully
If you have a number of both federal and private loans, all with different interest rates and due dates, it can be challenging to keep track of all the debt payments and schedules. In some cases, consolidating these debts into one payment can save you money in the long run by lowering your interest payments and making it easier to repay the loans.
Consolidation is best done once you’ve graduated, left school, or dropped below half-time enrollment. Consolidation can be done through banks or other private loan institutions. Be aware that to qualify for loan refinancing you are going to need a credit score in the high 600s and shouldn’t have any bankruptcies or student loan defaults.
There are downsides, however. Keep in mind that consolidation includes some fees. It may also make you ineligible for federal loan forgiveness programs. If you are currently aiming to take advantage of such programs by teaching in low income or Native American reservation schools, or by working at non- profits and in other select public service jobs, consolidating your loans could make you ineligible for loan forgiveness or affect the terms of the forgiveness agreement.
Delay repayment
Deferment and forbearance are two ways to put off paying back your federal and private loans. However, in most cases your loans will still accrue interest as you postpone payment. In the case of federal loans, the government usually offers forbearance and deferral for graduates facing financial hardship, or who are taking time to attend graduate programs, join a branch of the military, or take some other type of public service job.
When you avail forbearance and deferment options you may also end up paying more in interest over time. However, the delay in payments, or lower monthly payments through options like the Pay As You Earn (PAYE) program, can help you save on payments each month. That will free up capital you can put towards the costs needed for a start-up venture.
Keep living like a student
I know it can be a relief to finally get out of the dorms and get your own place. But to save every penny it will serve you well to continue to live like a student after you graduate. Even if you have a job where you are making a good salary, consider living cheaply and simply in small apartment or even getting a roommate to help share expenses post-graduation.
This will help you pay off your loans faster, saving you thousands of dollars in the long run, and also help you save up the additional capital needed for an entrepreneurial venture.
For entrepreneurs, the path out of student debt can be a rocky one, but it’s easy to navigate with the right tools and mindset. Be sure to take advantage of consolidation options if you are having troubles keeping track of all your loans, consider deferments, if needed, and live simply to save as much as possible. With some grit and determination, and a passion for sacrifice to see your start-up come to life, you can be one of the many success stories.
