When Carla Hardin graduated from the Pratt Institute with her Fashion Design degree, she had accumulated over $150,000 in student debt. Part of her career plan was to launch off on her own immediately after college.
However, her student repayment bill of $1000 each month, made this but a distant dream for her. After thorough introspection, Carla realized that she had to put her hopes and plans aside and work for a few years first so that she pay off what she owed.
There are so many graduates today in the same situation as Carla. Over 45 million U.S citizens, collectively owe $1.56 trillion in student debt, $521 billion more than the monster that is credit card debt.
Such debt makes it almost impossible to secure funding from brick and mortar institutions for startup establishment. However, all is not lost. There are ways to begin your dream venture while saddled with education loans. How do you do it?
Consolidate your loans
Carla had at least 12 private and federal advances to her name, and each had its own due date as well as interest value. Carla consolidated them to ensure that she kept track of them all, which made it easier for her to foot the bill.
It also went a long way in lowering the level of interest she was reimbursing. Eventually, she managed to clear them off faster and focus more on her business idea. Debt consolidation is done via a financial institution or loan provider like https://www.justrightloans.com .
However, like Carla, you have to maintain a clean credit score to enjoy this facility. The school of design graduate, for instance, has a rating of above 600, which worked out well for her. When Carla took the debt consolidation option, she had done her research and knew that once she combined her student debt, she would forfeit loan federal forgiveness programs.
But since she was not legible for the programs. You have to work either as a teacher in a low-income zone or work for a non-profit. Therefore, she was all set to fuse her debt into one manageable lump sum.
Take advantage of forgiveness programs
If you have only benefited from federal loans, there are forgiveness programs that can make it much easier to settle your education borrowing faster. This will assist you to get your startup’s financing much more quickly.
Some of these features include PAYE and Income Based Repayment. These two programs work with the amount you earn each month, only taking out a capped proportion of it. IBR, for instance, only takes a 15% cut of your wages while PAYE takes 10%.
To benefit from this facility, you, first of all, have to lodge your request with the Department of Education on an annual basis. It is a very slow method of payment, so if you are in a hurry to start your dream enterprise, it might not be very appealing.
However, with it, you will lessen your monthly costs and perhaps have a little left to set up your small venture. You will also maintain a clean credit score which will open doors for funding in the future. If you do manage to keep up with the reimbursement schedules for two decades, you could enjoy a writing off of your debts.
Before Carla decided to put her dream of starting her venture immediately after college aside, she had considered deferring her payments until when her company was up and running. She almost went for it, because it is easy to do so. All you need to do is to click a button on the education loan provider’s website.
This would allow her to start up her venture with the little income she was making from her side jobs and some corporate funding if is she required it. Unfortunately, the main risk is the long-term effects this would have on Carla’s finances.
The interest values could triple. What’s more, statistics say that over half of all startups fail within five years. If her venture went bust, then she would have an even harder time recovering from the failure and picking up those deferred loans at the same time.
Live cheap, work hard
Carla Hardin eventually did start her dream venture while paying off her education grants. She was fortunate to land a job with a decent salary, but she went on to live as if she was still a student at Pratt.
She took on a roommate and hopped buses to work to save on any extra costs. With the additional savings that she kept aside after making her consolidation repayments, she started up her business two years after her graduation. And since she was already making progress, it was much easier for her to snatch up a Kickstarter campaign that put her creations in the limelight.
Approach non-traditional financiers
Statistics show that any graduate with more than $30,000 is education debt has an 11% less chance of launching a startup when compared to graduates who leave college with a clean financial slate. However, there are loan providers out there, including Earnest, SoFi, or LendKey that attend to graduates saddles with such economic challenges.
They have assisted many a graduate to launch the idea of their dreams but through features such as deferrals and programs focused on business creation. These programs are, however, very competitive and getting that spot is not easy.
These firms’ help can change the statistics by increasing the rate of entrepreneurship as debt tries to strangle it. They aim to later benefit from financially healthier graduates with running businesses who can purchase mortgages, wealth management, and other services from them in the future.
With the methods stated above, you can begin to bring that stifling debt under control so that you can design an achievable funding or financing plan. You, for instance, can benefit from;
- Small business loans
Startup loans that are targeted towards small business owners. With a good credit score, the lenders that work with new ventures will be more inclined to be of financial assistance, while you are paying back your education debt.
- Angel investors
An angel investor can turn your financial challenges around where there are no other solutions in view. Websites such as AngelList can assist you in finding such investments. Alternatively, you could land one at your local chamber of commerce. If you believe your idea is disruptive enough to warrant their interest, make a business plan, and approach them. You will give up some of your venture’s equity, though.
From GoFundMe to Kickstarter, the online world today has more and more sources of business financing without the restrictions that accompany bank loans.
Educational debt is quickly killing entrepreneurship in the U.S, with 69% of the class of 2018, for instance, graduating with debt numbers of $29,800 each. That same class has 14% of their parents saddled with $35,600 Parent PLUS loans meaning, that the graduate cannot turn to them if in need of business funding.
If you have a good business idea in mind, any opportunity that can be of assistance where student loans have become a huddle is of value. Through any of the possibilities mentioned above, you might just find yourself as an inspiration to other aspiring entrepreneurs. All you need to do is get up and get started.