Do you want to be your own boss? It is definitely doable! Women are currently employing about 20 million workers in the United States through entrepreneurial businesses. They own 10.6 million individual businesses and account for about $2.5 trillion in sales according to this entrepreneur statistics page. While the success sounds great, you can’t forget what it cost to start these businesses. 19 percent of these women-owned businesses cost over $10,000 to start, and nearly 10 percent required over $50,000 to start.
Unfortunately, there is another factor to consider: student debt. When it comes to female entrepreneurship, it's not a stretch to say that the significant amount of student loan debt that millennial females are graduating with is impacting their ability to start businesses. In fact, entrepreneurship overall is down. According to the Kaufmann Foundation, the number of business owners between the ages of 20 and 34 was at its highest in 1996 at 0.28%, but this number decreased to just 0.25% by 2014.
Such trends usually incite a response from the government, which is exactly what happened. The government created what it calls the Student Start Up Plan in order to help current and potential entrepreneurs understand the federal student loan programs that could help them successfully repay their loans and succeed in starting their future businesses.
Rather than offering new programs specifically for entrepreneurs, the program clarifies the eligibility requirements for already existing programs like the income-driven repayment program. It makes it clear who would qualify for these programs and explains how these programs could help jumpstart a business in spite of student loans.
Income-Driven Repayment Plans
Many borrowers don't realize that in those first few lean years after starting a business, they could qualify for an income-driven repayment plan. These repayment plans keep your federal loan payments affordable by capping them according to both your income and the size of your family. Income-driven repayment programs are often marketed towards low income earners since they limit the amount that you have to put towards your student loan payment every month to between 15% to 20% of your discretionary income. After 20 to 25 years of on-time payments under income-driven repayment plans, you also qualify to have your student loans forgiven.
Why Income-Driven Repayment is So Useful
The reason why many entrepreneurs or aspiring entrepreneurs haven’t taken advantage of income-driven repayment in the past is that many haven’t known about the program or weren’t aware that they would qualify. For that reason, aspiring entrepreneurs might not be taking the leap into entrepreneurship because of worries over how they’ll make their student loan payments. Knowing that they have the flexibility of income-driven repayment plans might help give them the confidence they need to launch their businesses.
Not being aware that they qualify for income-driven repayment, current business owners might have previously made decisions that compromised their business. For example, many entrepreneurs are bringing in significant revenue within their businesses, but need to keep that revenue in their business rather than take it out as income to ensure that they can grow their business and deal with cash flow issues. Taking that money out as income in order to pay the standard monthly payments on their student loans might have caused their business growth to slow or could have put their business in danger.
With an income-driven repayment plan, a business owner won’t have to choose between not paying for an order or not paying their student loan on time. That means that they’ll still be able to grow their businesses and won’t have to face the consequences of not paying on time such as late charges, as well as a ding on their credit report which could impact your credit score and eventually impact their business as well.
How to Sign Up
In order to qualify, you must have enough debt in relation to your income that paying just 10% to 15% would work out to less than you would be paying under the Standard Repayment Plan. You can easily make the change to the plan by contacting your student loan servicers and applying through them. This can be time-consuming since if you have multiple loans you'll have to contact each servicer and lender separately in order to apply for income-driven repayment for each of your loans. Keep in mind that an income-driven repayment plan is not offered for student loans from a private lender. Your loans must be federal if you’re going to apply. So long as you are eligible, income-driven repayment could be just what you need as an entrepreneur to keep your personal finances and your business finances on track.
Guest Writer: Sophia Carla is a freelance writer who devotes a considerably portion of her writing time covering student loans, personal finance, and entrepreneurship. After graduating from college, she works full-time to pay her rent, and she writes in her spare time to help save up money to eventually fund her big new idea.