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Riding the College Loan Debt Bandwagon?
Scott Gerber has penned an interesting article for the Huffington Post. He alleges that a collective student loan debt of $1 trillion bars Millennials – aka members of Generation Y or the Trophy Generation – from following up on entrepreneurial dreams that would let them “actively take part in any job creation solution.” Gerber goes on to decry the sidelining of educated “entrepreneurially-charged individuals” – ostensibly because they cannot afford to start businesses with crushing debt hanging over their heads.
There is, of course, an answer to the problem. In fact, this answer has been around since 2007, when the Bush Administration created the Income Based Repayment (IBR) scheme for student loan borrowers. Students with crushing debt could cap federal student loan payments at 15 percent of their incomes and then take up to 25 years to repay the loans. After 25 years, remaining balances would be forgiven. The Obama Administration is finalizing plans that will lower the cap to 10 percent, with loan forgiveness occurring after only 20 years.
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A 99 Percent Excuse or a 5 Percent Investment Opportunity?
If you accept that Generation Y started right around the mid 1970s, the oldest Millennials would now be around 36 years of age. If you further agree to stipulate that they went to college right after high school and took four years to graduate, the average college loan debtor would have been repaying education debts for 13 years already.
Then again, what makes this generation difficult to pin down is the fact that the range within the demographic goes all the way to the early 2000s. Younger Millennials, therefore, also include recent high school or college graduates.
Perhaps not surprisingly, the current ‘Occupy Wall Street’ movement is made up primarily of Millennials. New York Magazine highlights that the majority of polled protestors fall into the 20 to 29 year age range, which is closely followed by the 30 to 39 demographic. Would a five percent cash influx really make the difference between becoming an entrepreneur and remaining a member of the 99 percent, who are content with occupying parks and tents in front of financial institutions?
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Defining Entrepreneurial Raw Material
For better or worse, Millennials have grown up feeling entitled. They were subjected to contrived recognition for coming in fifth; ribbons and trophies were given out just for showing up and trying. While it may not be a popular stand to take, I propose that it is not the crushing student loan debt that is preventing Generation Y from realizing its entrepreneurial dreams. Instead, it is a tendency to give in to a group-think mentality that thrives on feelings of entitlement to monies not earned. Needless to say, this is not the way entrepreneurs do business.
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Blueprint for Entrepreneurship with Student Loan Debt
If you have what it takes to be an entrepreneur, student loan debt is not going to stand in your way.
- Enroll in the IBR. The Small Business Administration has defined a “Student Start Up Plan,” which highlights just how low monthly payments on IBR loans can be. Did you know that an entrepreneur with an annual income of $20,000 only pays a monthly bill of $46 on student loans? For the entrepreneur with $40,000 in annual earnings, the monthly student loan payment is $296. If you make 75,000, the monthly cost increases to $735.
- Connect with the Gen Y Fund. The president believes that high student loan debt makes a steady paycheck more attractive than going out on a limb and starting a business with uncertain revenue generation. The Obama Administration is, therefore, championing the setup of the Gen Y Fund, which intends to “invest in as many as 100 startups over the next five years and several hundred over the next decade.” Angel investors are a tried and true method for getting well-planned start-ups off the ground, even if seed money is virtually non-existent.
- Start a business while in college. You have a six-month grace period after graduating or quitting school, before repayment begins. If you start your entrepreneurial venture while still in college, loan debt will not be a factor for half a year down the line.
- Make deferments and forbearances work for you. Federal loan rules entitle borrowers to receive up to three years in economic hardship deferments. This gives you plenty of time to get a business off the ground or concede defeat and look for the steady paycheck.
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It is evident that the college debt an entrepreneur has amassed for a higher education does not have to stand in the way of building a business from the ground up. What the indebtedness does demand, however, is a willingness to take financial risks and get creative with the timing of an entrepreneurial venture. Then again, aren't risk-taking attitudes and high levels of creativity just two of the hallmarks that adequately describe the mindset of an entrepreneur?
- Samuelson, Tracey, New York Magazine – “Meet the Occupants” Oct. 2, 2011
- Gen Y Capital Partners Website
- Small Business Administration Website
- Gerber, Scott, Huffington Post – “College Loan Debt Hobbles Budding Entrepreneurs” Nov. 1, 2011
- Photo Credit: “$100 bills in $10,000 straps” by Madigral/Wikimedia Commons via public domain setting