Ready to start your own business? Not so fast… Your student loans may be standing in the way!
Many startups are being affected by high student loan debt, and it’s affecting entrepreneurship in the US.
Student loan debt is now one of the largest forms of debt, with CNN reporting that approximately 40 million Americans have outstanding student loans. Many of those student loan borrowers are struggling to keep up with their monthly payments. This has a true economic impact on entrepreneurship in the United States. If entrepreneurs with student loan debt can’t afford the risk of starting a business, there will be fewer job opportunities for skilled workers.
The Wall Street Journal reports that almost 90 percent of small firms–young, innovative companies–have less than 19 workers, but create jobs twice as fast as large companies. If student loans prevent the creation of new businesses, the effects could ripple throughout the entire economy.
What impact do student loans have on entrepreneurs?
According to Vivek Wadhwa, of Stanford University, student loans have become the biggest obstacles for new entrepreneurs. With debts that can reach six figures, entrepreneurs find it difficult to take the risk of starting their own businesses. Startups and their teams have unpredictable revenue during their early years and high levels of student loan debt create even more uncertainty.
Industry groups recognize the effect student loan debt is having on new entrepreneurs. The Jobs Council reported that the number of new businesses has decreased by 23 percent in recent years. The Jobs Council cites student loan debt as the reason that many graduates decide against starting their own businesses, and recommends that Congress and the current administration implement a comprehensive strategy to help startups, and
What is the government doing to help startups?
The White House has has also taken notice of the impact student loan debt is having on new entrepreneurs. In 2011, it created Startup America, an initiative to support and accelerates the growth of entrepreneurship. Corporations, foundations, universities, and business owners joined together to form the Startup America Partnership, whose goal is to strengthen local businesses and help entrepreneurs launch new businesses.
How can entrepreneurs reduce the risk to maximize the return?
The biggest challenge of starting your own business is the lack of predictability in income. Startups require investment of capital without any guarantee of an immediate return.
Entrepreneurs know that every dollar counts and entrepreneurs facing high student loan debts can use deferments and forbearance as ways to postpone their monthly payments.
Here are a few ways you can reduce your financial burden and secure the success of your startup:
1. Create a budget for your monthly spending. This helps you track where your money is going and where you need to cut back. But don’t worry, you can still live the good life while paying off your student loans. The goal is to reduce your financial risk during the critical early years.
2. Relocate. Relocating can help you save money that can be invested in building your business and making your student loan payments. This could mean moving out of an expensive apartment into something more modest, or moving to a new city altogether. Sound extreme? It’s actually quite common for entrepreneurs to relocate to save money. And it can be the most powerful way to slash your spending and free up resources that you can put to work towards your business and student loan debt.
3. Enable a mobile workforce. Technology has made the office practically obsolete. Although this may not be for everyone, allowing your team to work remotely can be a big money-saver in the first phase of your business. And if you’re a startup with student loan debt, this can be a game-changer for your productivity and finances. Using tools such as Skype, Google Hangouts, or Slack, team members can work together without costly office space, equipment, and amenities that traditional businesses have to pay for. You reduce the cost of commuting to a workspace while creating a more flexible and agile startup.
4. Optimize your student loan debt. Entrepreneurs have options when it comes to repaying their student loans as well. The following are just a handful of programs that you may qualify for:
- Income-Based Repayment (IBR)
- Pas You Earn (PAYE)
A quick look at our list of student loan repayment plans will give you an idea if these options might be valuable to your startup strategy.
Student loan debt should not deter you from starting your own business. By reducing the financial weight of student loan debt and the risk of unpredictable revenue, you can enhance your role in building a strong economic future.
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