Millennials are interested in starting their own businesses. According to the 2016 “Millennial Economy” survey from EY and the Economic Innovation Group, 62 percent of millennials have considered starting a company. However, as the Kauffman Foundation pointed out in a Forbes commentary, student loan debt is preventing many millennials from pursuing their entrepreneurial dreams.
There’s hope for would-be entrepreneurs who feel like they’re drowning in student loan debt. When I started my journey, I was a college graduate with $74,000 in student loans. You don’t have to let student loan debt derail your dreams.
Here are some questions I asked myself before launching my successful startup while paying off student loans—and you should too.
1. Can you lower your student loan payments?
The average student loan payment for a borrower between the ages of 20 and 30 is $351 per month. For some borrowers, payments might be even higher. Depending on your income, that number can feel like an insurmountable drain on your resources, especially when it’s coupled with other obligations, such as housing and food.
If you want to free up money in your budget to invest in your business, lowering your student loan payments can help. Here’s how to reduce what you pay toward student loans each month.
I wish I’d known about income-driven repayment when I was living at home and making the most of unemployment checks. These Department of Education programs help you manage your federal student loans by capping your payments at a percentage of your discretionary income.
If you qualify for income-driven repayment, you can improve your monthly cash flow by limiting the amount that goes toward student debt each month. Take the extra money and put it toward your startup costs.
Federal loan consolidation
Even if you don’t qualify for income-driven repayment, you can reduce your monthly payments by consolidating your federal loans. This strategy takes loans with multiple payments from various services and puts them in one place with a single bill. Not only does this strategy streamline your repayment, but it also results in a longer loan term, leading to lower monthly payments and more financial breathing room to fund your startup.
Refinance your loans
You also can consider refinancing your student loans. Refinancing replaces your old loans with one new loan—perhaps with a lower interest rate and payment. You can refinance federal loans as well as private loans. However, if you refinance your federal student debt, you lose access to income-driven repayment and other programs.
Run the numbers to see what makes the most sense for you. Refinancing can save you money in interest and lower your monthly payments so your debt is more manageable and you can focus on your startup.
Pay off student loans early
Once your business starts returning profits, it’s important that you tackle your student loan debt in earnest. Strategies designed to lower your monthly payments can be helpful while you get your startup off the ground, but they often cost more in the long run because they stretch out the time you’re in debt.
That’s why it’s important to pay off your student loans early when your income increases. Once my business was growing and I saw increased income from my entrepreneurial efforts, I began making extra student loan payments. In the end, my business helped me pay off my student debt early—even though I originally accepted a longer term to improve my monthly cash flow.
2. Are you staying on top of your student loan debt?
One of the hardest lessons I learned while starting a business with student loan debt was the importance of not missing a payment. Rather than taking advantage of some of the available programs, I ended up making two major mistakes with my student loans after graduation:
- Deferring student debt for three years
- Defaulting on two loans when I lost track of them
These two mistakes resulted in $33,000 added to my student loan balance. Rather than investing that money in my startup, I had to eventually pay it off.
You don’t have to be like me in this way. Consolidating your student loans federally or through private refinancing can simplify your debt so you don’t lose track. And getting on an income-driven repayment plan eliminates the need for deferment due to economic hardship.
Missing student loan payments also can impact your credit and make it harder for you to get financial support for your business. Preserving your credit rating is vital if you want to be able to leverage your personal finance reputation down the road. If you can use consolidation, refinancing, or income-driven repayment to stay current on your student loans, it’s good for your credit and, ultimately, for your startup.
As long as you remain on top of your student loan debt and your payments are manageable, your loans don’t have to keep you from your startup dreams.
3. Are you ready to make your business a priority?
Now that you’ve freed up some of your monthly cash flow, it’s time to put it into your startup. Research where that money will do the most good. Should it go into developing a product or service? Do you need money for marketing?
Draw up a realistic business plan that can be your roadmap as you move forward. Make your business a priority in your life and with your money. There were times I felt overwhelmed as I moved forward with my young company. But being out of my comfort zone forced me to stretch and grow. As the CEO of a multimillion-dollar company, I still use the things I learned in the early days of my business.
4. How can you maximize your monthly cash flow?
Your student loan payments aren’t the only obligations reducing the resources you can put toward growing your business. Look for ways to better manage your money so you have more capital for your venture.
One of the issues I faced was cost of living. At one point, I moved to Southeast Asia. It was a big change, but it allowed me to reduce my day-to-day living expenses, freeing up more capital for the business. Even after I moved back to the United States, I decided against buying a car, choosing to bike everywhere and save money on the costs associated with car ownership. I also saved money by sleeping on an air mattress in my apartment instead of buying a bed and looked for other ways to reduce costs.
Next, I found ways to increase my monthly income. I listed my apartment on Airbnb and worked as a freelancer. These measures brought in money to cover my costs while I put resources into growing my startup.
Another strategy is to refinance credit cards with high interest rates. A debt consolidation loan can help you reduce your interest rate and better manage your payments. With lower payments and a path to get out of debt, you’ll have more money available for your business.
Eventually, my business grew to the point where I could pay myself a salary. But it would have taken even longer if I hadn’t committed to investing in the startup by freeing up my monthly cash flow.
5. Can you find ways to stay motivated?
My original business ideas didn’t go anywhere. And at one point, as I was down in the dumps and dwelling on my student loan problems, I felt the fire going out. Could I really be an entrepreneur?
I managed to get that fire back by taking chances and surrounding myself with people who shared my vision. With members of my original team, I applied for—and was accepted to—Start-Up Chile, a business incubator. We moved to Chile and worked hard on our business idea, changing and adapting it to meet the needs of the market.
Staying motivated worked best when I was able to change things up a bit. It wasn’t easy to move to Southeast Asia and, later, South America. However, those changes got my creative juices flowing again. The challenges forced me to stay motivated and work harder.
Today, I stay motivated by looking at the mission of my company and seeing how far we’ve come in the past few years. Find the “why” behind your entrepreneurial journey. It will help you maintain your passion when times are tough and provide motivation to power through setbacks and come out stronger.
Succeed in business even with student loans
Student loans don’t have to delay your entrepreneurial dreams. I was able to build my business even though I had six-figure student loan debt. Stay on top of your situation and don’t give up. Once your business is successful, you’ll be able to get rid of that debt once and for all.
Andrew Josuweit is the founder and CEO of Student Loan Hero.