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“There's a whole umbrella of things that need to be paid for,” Hardin, 35, said. “I couldn't see a light at the end of the tunnel.”
After five months, she quit her business. “I just had to work to make money to pay that loan,” he said.
Student debt can have a chilling effect on entrepreneurship, according to a small but emerging body of research.
People with student loans may have less money to invest in a new business and may have difficulty getting financing from a bank. Additionally, some aspiring entrepreneurs may be reluctant to take on the risks of a new business when they have a monthly student loan bill to pay. Despite all these, half small businesses they fail by the fifth year.
A person with $30,000 in student loans is 11% less likely to start a business than someone who graduated with no debt, according to calculations by Karthik Krishnan, an associate professor of economics at Northeastern University who researches student debt. Businesses started by people with student debt also don't grow as fast as those run by people without it, Krishnan finds.
“It's going to be a big problem as we get into the next decade,” Krishnan said. “We will see a gradual deterioration in the outcomes of economic mobility and start-up activity.”
We will see a gradual deterioration in the results of economic mobility and start-up activity.
Karthik Krishnan
associate professor of economics at Northeastern University
The average debt at graduation is now about $30,000, up from $10,000 in the early 1990s. At the same time, youth entrepreneurship is declining. The share of new business owners between the ages of 20 and 34 was about 25 percent in 2016, up from 35 percent in 1996. Half of young adults who either already own a business or plan to do so identified student debt as one of the top obstacles, according to a recent study by the Young Invincibles, a student advocacy group.
Not long after graduating from college, Alec Stevens tried to open a gambling store in Kennewick, Washington. The space needed to be big enough, he said, to host events and hold plenty of tables for people to play.
After researching his business, he knew he needed to borrow about $50,000 to get it off the ground. But bank after bank refused him a loan.
“They said that because I had this giant student debt looming over me that I was too risky,” Stevens, 38, said. He owed about $30,000.
Fortunately, his parents agreed to lend him about $10,000 and he opened a smaller shop in a quiet part of town. However, the store proved too small to succeed, he said.
“I couldn't do big events and people lost interest after a while,” he said. After one year, he did not renew his professional license.
Small business owners may be particularly hurt by the effects of student debt, according to a study by researchers at the Federal Reserve Bank of Philadelphia and Pennsylvania State.
As student debt outstrips credit card and car debt, the number of businesses with one to four employees fell 14 percent between 2000 and 2010, the researchers found.
The consequences of this trend could reverberate throughout the economy, said Brent W. Ambrose, the Smeal Professor of Risk Management at Pennsylvania State University and a co-author of the study.
“A large percentage of employment in the United States comes from small businesses,” Ambrose said. “If student debt causes a reduction in the ability to create these new businesses, that could be a problem.”
Often, new business owners make little or no money for themselves while working to start their venture, said Mark Kantrowitz, publisher of SavingForCollege.com. So they should see if they qualify for a postponement or forbearance, temporary deferrals of their student loan payments. (Note that this may result in your debt increasing due to interest accrual.)
“Businesses should also consider income-based repayment plans, which base the monthly payment on your income, as opposed to the amount you owe,” Kantrowitz said.
To raise money for your business, Kantrowitz recommended using crowdfunding platforms such as Kickstarter, Indiegogo the GoFundMe. You can also consider asking relatives for help or hunting down angel investors or business accelerators, he added.
People who want to start a business should “live like a founder,” said Noam Wasserman, the author of Life is a Startup. Find the discipline, he said, to keep your expenses low, save money and pay down your debt. He said one of his students was living on a friend's couch instead of renting an apartment to pay off her student debt.
Once your business takes off, make sure you make at least the minimum payment each month on your student loans to avoid penalties and protect your credit score, said Kimberly Palmer, personal finance expert at NerdWallet.
New business making life hectic? “You can set up the payment as an automatic draft from your bank account so you don't have to worry about accidentally missing it,” Palmer said.
Nerdwallet and Small Business Administration you also have tips on how to start a business with student debt.
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