Entrepreneurship takes commitment, vision, leadership — and money. This means millennial entrepreneurs could find themselves at a disadvantage because they might be struggling to keep up with student debt payments while starting to build their businesses. The average student debt in the United States for the class of 2015 is a staggering $35,000, and the trend has been on the rise for more than 20 years. For some graduates, debt can run into six figures.
This financial burden is a hurdle for entrepreneurs, but not an insurmountable one. With planning and discipline, millennials can pursue their dreams while paying down their debt.
Consolidate or Defer Loans
There are many options for consolidating student loans. The primary advantage of consolidation is that it can reduce interest rates, lower monthly installments and simplify payments. Banks offer consolidation, as do a number of refinancing startups. However, these institutions are looking for good credit scores and relatively “decent” salaries. Bankruptcies and defaulted loan payments will probably penalize applicants.
Entrepreneurs that anticipate little or no income, and who have federal student loans, can apply for the Income-Based Repayment (IBR) plan from the Small Business Administration. With this plan, student loan payments are based on how much an individual earns — those who make less than $20,000 per year pay nothing until their annual income rises.
The federal government allows some borrowers to defer payments under certain circumstances. Information about this is available at the Federal Student Aid website.
Build a Safety Cushion
In times of financial uncertainty, it’s helpful to have a cushion to fall back on. There are two primary ways to achieve this: taking a conventional job to build up savings or doing work on the side — such as consulting — as the entrepreneurial effort gets off the ground. Entrepreneur recommends that people starting businesses save enough to sustain themselves for six months or more.
Live on the Cheap
Budding entrepreneurs should create a modest budget for themselves and stick to it. Ideas for saving money include:
Frugal living might not sound attractive, but it will allow millennial entrepreneurs to set aside more money to repay debt. There are many ways to plan and adhere to a budget, including online tools such as Mint and PearBudget. A little knowledge about accounting is helpful, but not necessary. Sticking to a budget might be difficult, but it can be done.
Entrepreneurs are enthusiastic and driven, and most want to build successful organizations as quickly as possible. However, it’s important for millennials starting a business to be realistic about what they can accomplish while still paying down their student debt. This is a balancing act. As much as young professionals might want to throw themselves into the new enterprise, they might need to continue working part- or full-time to maintain themselves and make debt payments.
Without realistic expectations, the entrepreneur might be frustrated when immediate goals are not met.
Don’t Stop Thinking About the Future
It’s normal for millennial entrepreneurs to want their new organizations to be overnight successes. While sudden and immediate growth is impressive, it’s important for all people starting a business to think long-term. There will be frustration, hurdles and setbacks, and many new businesses fail. Accordingly, entrepreneurs should always have long-term goals in mind in addition to their short-term goals.
Entrepreneurship is a cornerstone of capitalism and a driver of innovation and economic growth. Student debt is an obstacle to starting a new business, but it is one that can be overcome with commitment, organization and realistic expectations.