Student Loans Dents Dreams of Startups
Cathrine Berendsohn, 29, has struggled to get her web design business off the ground after she graduated from Florida State University with $40,000 in student loans. Berendsohn had dreams of opening a storefront in Monterey, California where she could start a roving studio of her own. However, her student loans are the reason she was denied the money she needed to realize this dream.
It started when Berendsohn was denied a personal credit card while she was attempting to expand her business. At the time she was being asked to pay $400 a month on her college loans. She took a website project and began taking on more clients in Carmel Valley Village, California however, she was forced to shut down her business and move back home to Miami when she lost a commission for a local mural project.
The impact of student loans is obvious and this burden is hindering millennials from taking the entrepreneurial path.
Arnobio Morelix, a senior research analyst with the Kaufmann Foundation, and E.J. Reedy co-wrote a study where they found the rise in student debt has coincided with a decline in startups.
The student found that young people weren’t entering the entrepreneur world in the same numbers we had seen in the past. In the 20-34-year-old age group the share of new entrepreneurs fell to 25 percent in 2014 from 35 percent in 1996.
While the decline is evident in the percentage of entrepreneurs, the increase in student loans is very apparent as well. Student loans rose from about $510 billion in 2007 to more than $1.3 trillion today.
“Young adults, who used to be the largest age group involved in new companies in 1996, now amount the smallest demographic group,” writes Morelix and Reedy.
Most young entrepreneurs tend to “bootstrap” their companies with their own money and that of friends and family as opposed to going to big venture capital firms or business incubators. However, being in debt with student loans makes bootstrapping that much more challenging.
Even the graduates who have started promising startups run into issues when they begin securing financing as their student loans inevitably get in the way.
Austin Dean, 28, began his first business repairing computers back in 2007 while he was attending Grand Valley State in Michigan. He was forced to shut this business down eventually due to cash flow issues.
Dean went on to start his second business that was bought out by a partner and he’s now on his third business, Collective Metrics, which aggregates and measures the effectiveness of community projects.
“If I didn’t have student loan payments, I would absolutely put that cash into my business,” Dean states. “My student loan payments are $550 a month. Right now, we operate on a bare-bones model, just enough to get by and keep things running.” He says he’ll continue to make these payments for another 4 years until he pays off his $24,500 balance.
The problem with student loans is they begin long before many future entrepreneurs are thinking about financing and starting a business. Many students are in high school when they start to borrow money and are not aware of how this debt will affect them later down the line.
Help is Available
Crowdsourcing sites like Indiegogo.com and GoFundMe.com don’t ask for credit reports and give budding entrepreneurs a great way around this hurdle. Sometimes, simple business ideas on these sites can bring in thousands of dollars for an entrepreneur to begin to build their business.
With student loans, there are a lot of options available and we recommend speaking to a specialist about the best option for you. Call us today at 800.940.8911 to get expert help with your loans.