Millennial entrepreneurs are drowning in student loan debt.

The Federal Reserve estimates that Americans owe approximately $1.3 trillion in student loans. The millennial generation represents a sizeable share of the nation's 43 million student loan borrowers and their debt load increases every year. The typical 2016 college graduate owes $37,172 in student loans, six percent more than 2015 college graduates.

Beyond principal balances, the impact of student loan debt is felt in monthly payments. The average monthly student loan payment for borrowers in their twenties is $351; for borrowers in their thirties, monthly payments average slightly less at $203. Aspiring entrepreneurs who completed post-graduate work can face even higher average monthly payment amounts.

Student loan debt makes it difficult for young entrepreneurs to save for a startup or small business acquisition, and creates cash flow burdens once the business is up and running. Too often, large student loans discourage talented millennials from chasing their entrepreneurial dreams altogether.

It doesn't have to be that way. By learning to manage their student loan obligations, millennial entrepreneurs can overcome these obstacles and make their ownership dreams a reality.

Managing Student Loan Debt When Starting or Buying a Small Business

Launching or buying a business isn't for the faint of heart. It requires personal sacrifice and the ability to make hard decisions in both your business and personal lives.

If you're a millennial entrepreneur, here's the bad news: Your student loans aren't going away. But the good news is that you can structure repayment to minimize the impact of student loan debt on your business ownership plans.

Loan Consolidation

Student loans can be either federal or private. Although the options are more limited for private loans, federal loans can be easily consolidated to simplify repayment and lower monthly payment amounts.

In some cases, federal loan consolidations can be restructured into a graduated payment plan. Instead of uniform monthly payments over the life of the loan, payments are lower during the early years, when you are just starting out as a business owner and cash flow is tight. Payments increase after two or four years, but graduated repayment plans provide the breathing room you need to get your business off the ground.

Private loans can also be consolidated, especially if you have a good credit rating. Talk to your lender to determine whether you qualify for consolidation and if so, which plan is most beneficial for helping you achieve your ownership goals.

IBR and PAYE Programs

During the initial period of business ownership, most entrepreneurs have limited personal income. Instead of paying themselves, owners usually pour money back into their businesses. It's a smart business strategy, but it makes it even more difficult for entrepreneurs to keep up with student loan payments.

Federal student loans borrowers with little or no income can apply to participate in Income Based Repayment (IBR) and Pay As You Earn (PAYE) programs. These government sponsored programs can be a godsend to cash-strapped entrepreneurs because they index monthly payments to personal income.

Monthly payments are capped at either 15 percent (IBR) or 10 percent (PAYE) of the borrower's personal, discretionary income. Although you'll have to re-apply annually with the Department of Education, IBR and PAYE offer much-needed relief when cash flow is tight.


Bootstrapping is a tried and true strategy for entrepreneurs and business owners in the early stages of their careers. To improve the odds of business success, new owners often live frugally, even if it means radically altering their personal lifestyles for a period of time.

A bootstrap mentality can also be useful for managing student loan debt. By resigning yourself to a frugal lifestyle for a few years, you can pay down your student loans without seriously impacting your business plans.

The most important thing to keep in mind is that your student loan debt won't last forever. Once you're able to repay your loans, you'll have more money to invest in your business.

Published on: Aug 29, 2016
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