The Pew Research Center reports that the Millennial generation is on track to become the most educated Generation in history based on degree acquisition. While this phenomenon is a result of a variety of circumstances, it’s a well-known fact that student loans have played a major part in this degree acquisition spike, allowing many to access a higher education that otherwise would have been too expensive to obtain.
However, the other side of the coin is a reality that student loan debt is crushing the prospective entrepreneurial pursuits of many graduates, including both millennials and members of Generation X. Per Student Loan Hero, students and graduates (over 44 million of them) have nearly $1.5 trillion in student loan debt. The average student loan payment is $351 per month and 11.2% of students and graduates with debt (nearly 5 million) are 90 days behind in payment or in default.
Due to having high debt loads with only a six-month grace period following graduation, many students are being forced to forgo entrepreneurship and take up other employment that allows them to remain current with their student loan payments. This is having a negative effect across the U.S. economy by decreasing innovation within the marketplace, most of which comes from start-ups and small businesses. Less than 4% of Millennials are self-employed as their primary job, which is less than Generation X and Baby Boomers during the same age range. This isn’t a good situation for the U.S. economy, seeing as though over 60% of new jobs come from the startup and small business sector
The US Economy Can’t Afford For You To Put Off Your Idea
With the U.S. Economy experiencing a slowdown in entrepreneurship, if you have a great idea, innovation, or opportunity in the marketplace, for the sake of not just the U.S. economy but your own “personal economy”, you shouldn’t avoid taking advantage of said opportunities just because you have student loan debt. While various personal finance gurus like Dave Ramsey rail against individuals carrying debt in general, the reality is that sometimes carrying debt is a required situation while you preserve cash flow for other aspects. As you choose to take advantage of a business opportunity while still managing your student loan payments, feel free to incorporate some of the following practices.
Try To Only Take Out Federal Student Loans
If you can possibly avoid it, try to avoid taking out private student loans and limit yourself to the Federal Stafford Student Loan options. The Federal Government does not require a credit pull, offers better interest rates and better terms, and brings various built-in hardship provisions that allow you the flexibility to reduce your payments or forgive them altogether in certain circumstances.
Temporarily Reduce Your Student Loan Payments
Depending on your outstanding balance, you might want to look at just reducing your student loan payments down to minimum payment amounts that are far lower than what the standard repayment cycle would be. You can do this if again, you limit yourself to just the Federal Stafford Student Loan options. You could apply for a variety of student loan repayment options from the federal government such as Income-Based Repayment (IBR), Pay As You Earn, etc., during annual enrollment periods.
Keep Student Loan Payments Reduced And Try Qualifying For PSF
If you somehow can work a qualified non-profit job on the side while building your business, while also continuing to utilize IBR or Pay As You Earn, within 10 years you could qualify for a total forgiveness of your student loan balance. Note that you could be required to pay taxed on the amount forgiven.
Keep Your Personal Expenses Low
While growing your business and managing student loan payments, you might want to try living below your means and keeping personal expenses relatively low. This could include putting off major life changes, living a minimalist lifestyle, and avoiding over-consumption on various recreational items.
Leverage Alternative Business Financing
With the rise of FinTech innovation in the lending industry, you might be able to leverage different forms of innovative financing options to use as additional capital to start, grow, and develop your enterprise. This additional cash on hand could allow you to invest in your business to accelerate growth aspects which of course would be great for your business and great to continuing to pay down your student loan balances.
As The Business Grows, Throw More At The Student Loan Balance
As your business continues to grow, keep your personal expenses low while you keep throwing more and more funds at the student loan balance. Pretty soon, you will find yourself having started, grown, and developed your business, while having successfully paid down your student loans at the same time. This will be great for not just the U.S. Economy, but also your own “personal economy”.
This article was originally written on October 31, 2018.