Having debt over your head can be soul-destroying, more so when you are trying to jumpstart a business. If you are trying to fund the business yourself, you will want to have as much cash in hand, and having debt means fewer available resources for your business. If you are trying to get a loan, you don’t want to pile up on your debt and drown in interest.
One type of debt that negatively affects the ability to start a business — especially individuals between the ages of 18 and 34 — is student loan debt. Student debt in the US is a serious issue. Many graduates are drowning in debt, and many students are storing up financial problems for the future. According to Education Data, there are over 43 million US students currently living with an average debt of nearly $40,000 each. Because of student debt, the ability of would-be entrepreneurs to save or create a savings buffer needed when one is trying to launch a business is significantly hindered. Those with student loan debts have lesser cash available to invest in their entrepreneurial activities.
Fortunately, there are some ways that this debt can be alleviated, and in some cases erased.
Should student debt be a concern?
Depending on which report you read, it is believed that one in fourteen or fifteen respondents to a study said that they have considered suicide. This wasn’t a study based on mental health issues, it was for student loan debt.
Tuition costs money, and unless something changes in this area loans are often needed to help fund this. These loans usually come from two sources, federal government funds, or private loans from banks or other lenders.
As everyone knows, loans accrue interest, fees when late, and ultimately have to be paid back. There were reports that the total student loan debt was around $1.6 trillion in 2020, however, this figure has grown to $1.7 trillion today according to CNBC.
The total student loan debt has been rising worryingly, with increases of 6% to12% year on year.
How does this affect a graduate or student?
Heading to college or university should be the start of a successful life. Many college men and women know how to start a business as a student, and go on to be successful entrepreneurs. Others are recruited out of university by highly successful corporations.
However, Covid has changed a lot of the routes that graduates can take. Many businesses suffered during 2020, with numerous firms closing down for good. This led to a rise in unemployment, and no guarantees that graduates would be able to find plum jobs.
Unemployment for recent graduates lies at a disturbing 53%. This figure includes graduates who are employed but in part-time roles. Salaries are averaging around the $50,000 mark, which is only $10,000 above the average debt.
What physical and mental health ailments are caused by debt?
Sleep deprivation is a common problem with anyone in debt. Anxiety and worry can cause restless nights, and they can impair work performance.
Concentration suffers, the immune system gets battering, and migraines can occur. Blood pressure can rise due to debt, and more serious problems such as stroke and heart disease have been linked too.
Mental health concerns, including depression and suicidal thoughts, happen due to the stress of debt. Fortunately, anyone can improve their mental wellness, as well as obtain financial wellness with debt help.
Student loan consolidation
Consolidating debts means taking all outstanding loans and putting them into one. Instead of having 2 private loans and a federal loan, you could put them all into one. This means that there is now only one monthly payment to make, which many find more manageable and easier to deal with.
The government has its own Direct Loan Program for the consolidation of federal loans. This can be helpful as the student gets to keep the extra benefits of having a federal rather than a private loan. However, federal loans can be paid off by private lenders for the purpose of consolidation.
The negatives of consolidation include a longer payment period, and the benefits include one simple monthly payment.
Student loan deferment
This is a short-term solution to alleviating the pressure of repaying a debt. It is not a solution to avoiding payment forever, and deferment should be considered carefully.
If you qualify for federal loan deferment then you may not have to make any repayments for up to 3 years, and no interest will accrue. However, any unsubsidized federal or private loan will accrue extra interest that will be waiting for you after the deferment period.
Deferments are not always the best option, and reduced payments may be better if you are struggling each month.
Student forgiveness programs
It is important to note that these forgiveness programs are only available for a student who took out a federal loan. It is highly unlikely any private lender will forgive part or all of a loan.
Forgiveness programs are designed to allow a student to forgo payment on all or part of a loan. These are a few of the reasons why this might happen.
- Closure of a school or college
- Serious illness or disability
- Fraudulent activity by the educator
- Employment in the public service
A student loan debt might be forgiven if something completely out of the individual’s control occurred. This could be the sudden closure of their college, or an accident resulting in disability. If the school acted fraudulently then the loan may also be forgiven in full or partly.
The normal route for federal student loan forgiveness is through public service employment. For the graduate to be eligible they would have had to make 120 consecutive repayments of their loan and work in the public service full time for the same period.
Student loan refinancing
With many graduates owing over $100,000 each, it is perhaps not surprising that some would like to seek refinancing options.
It can be similar to consolidation in that you could gather all of your loans into one new loan, but refinancing has some other benefits.
Refinancing can mean choosing a new repayment plan, having a lower interest rate, income-based repayments, and forbearance. Deferment may also be an option.
Student loan debt planners
Another way that a student might seek help is through a private debt planning company. A graduate could receive student loan help from a specialist adviser who will point them in the right direction.
Student loan debts can seem overwhelming. With all the different options available from consolidation, refinancing, deferments, and forgiveness programs, it can be difficult to know where to turn.
Seeking professional advice from a student loan planner could mean the difference between spending extra years and tens of thousands of dollars, paying off a loan, or freeing yourself up. Loan advisers can recommend the best forgiveness programs to search out, how to save money and the best way for a student to get on with their lives.
Summary
Despite the huge amount of student loan debt, and the weight that graduates can feel, there is actually a lot of help out there. The options can seem confusing though, and you would need to qualify before receiving any refinancing or forgiveness program.
This is where student loan advisers can help with making payment plans, or helping to choose the right path to go down. If you are a student with mounting debt problems then seek out a qualified debt counselor or student loan planner for help.
Making a huge change for the better might not be too difficult.
