Are your entrepreneurial dreams stifled by your student debt? A new program could help.
GenY certainly isn’t at a loss for entrepreneurial ideas. But when it comes to funding those ideas, we face a challenge that can seem insurmountable, especially when it’s tacked on top of all the other financial obstacles to starting your own business: paying off student loans.
Because when you’re trying to make it on your own for the first time, putting several hundred dollars or more each month toward paying off that expensive college education can be stifling, no matter how ambitious you are. That’s why some Millennials with the entrepreneurial spirit stay in traditional 9-to-5 jobs rather than starting their own businesses — businesses that would create jobs for our barely-recovering economy.
So Brazenites should be psyched to hear about a new opportunity from the Young Entrepreneur Council that will make it easier for 20-somethings bearing the weight of student loans to file for that LLC.
Starting Nov. 1, Millenials with smart, innovative ideas for startups can apply to the YEC’s new Gen Y Capital Partners, which will soon fund early-stage ventures. The $10-million fund plans to invest $15,000-$50,000 into businesses started by young people. And to help remove barriers for those young entrepreneurs, the program will also pay the founders’ federal student loan debt obligations for up to three years.
“The No. 1 problem for most young people is they don’t have the funds available to them to start a business,” said YEC founder Scott Gerber, who founded the video-production company Sizzle It!. “These programs are… opening the playing field and removing certain barriers to entry.”
The YEC program — which uses private funds, not federal money — corresponds with a new initiative by the White House to make it easier to manage the increasing burden of student loan debt by allowing new graduates to cap their loan payments at 10 percent, rather than the 15 percent allowed now.
That change was approved by Congress last year (though the original program was created by the Bush administration) and is set to go into effect in 2014. But the Obama administration has now proposed moving the effective date to late 2012. For that to happen, the Department of Education must first undergo a rule-making process to create the regulation.
The current law, called the Income-Based Repayment Plan, allows borrowers who qualify based on their income and family size to limit monthly loan payments to 15 percent of their discretionary income. It also forgives all remaining debt after 25 years, while the new plan would forgive the balance of graduates’ debt after 20 years of payments. But few students know about this option, the White House said in a press release.
While the income-based plan is designed to help all graduates, the U.S. Small Business Administration has a website that explains how it specifically benefits young entrepreneurs. There’s a calculator on the site, but as an example, if your income is $30,000 annually, the monthly payment for your federal loan would be capped at $171. If you earn less than $20,000 a year — which, let’s face it, is totally feasible for young entrepreneurs just starting a business — your monthly payment $0. That’s right, $0.
Whether you’re an entrepreneur or not, it’s worth checking whether you qualify.
As for the YEC’s new program, they’re planning to invest in 100 Millennial startups during the next 3-5 years. Will yours be one of them?