The numbers for student loan debt are truly staggering. Approximately 37 million Americans carry $1 trillion in educational debt according to the Federal Reserve Bank of New York. The under 30 set is the most heavily burdened, but the 30 to 40 cohort is badly in the hole, as well. The average debt of a recent college graduate is $24,000. That number doesn’t touch the scale of the problem, though. Graduate students borrow one third of all federal direct loan funds. In 2012, the typical law school graduate finished with an eye-popping $128,125 debt.
The debt weighs on the whole economy, but it causes particular problems for small businesses. Entrepreneurs likely have as many loans as anyone else. They can find themselves struggling to invest in the business. Customers who feel strapped are hesitant to buy and employees may be in a state of perpetual job search.
Debt Can Hamper Business Investment
Startups must invest capital to develop ideas and market products. Young entrepreneurs can feel cut off at the knees as they have to take cash out of the business to make student loan payments. However, the federal Income-Based Repayment Plan can offer some relief in the form of reduced payments for those who qualify.
Business credit is often tied, at least in the early years, to personal credit, so it is important to make student loan payments a priority. Even well managed student loan debt may affect eligibility for business loans though, so it is important to begin to build a separate financial identity for your enterprise as early as possible.
The first steps are fairly simple:
- Get a business phone number,
- Apply for a tax identification number (EIN)
- Set up a separate checking account for business bills.
- Structure your business in some form other than a sole proprietorship or traditional partnership, and
- Develop a professional business plan to show to lenders.
If you manage your personal finances carefully and establish your business as a separate entity, your student loans may have come to have less importance to your company.
Student Debt Shapes Consumer Behavior
The impact of educational debt on your customers will vary quite a bit with what you are selling and where your business is located. Sales of luxury items and basic necessities are probably less affected than everything in the middle. Services and goods may also be affected differently. Debt-conscious consumers may scrimp on services first, buying the widget, but passing on the extended warranty. Businesses that market both goods and services may want to take creative marketing approaches to this and other of buying behaviors.
Student Debt Shapes Employee Behavior
Particularly in some areas of the country like the New York and DC metropolitan areas, private employers may have difficulty competing with the public sector. Under the Public Service Loan Forgiveness Program, highly educated, but heavily-indebted students who go to work for public employers may have student loans wiped clean after 10 years of repayment. Some private employers may be able to even the playing field with higher salaries, but small businesses may not. Trying to compensate with company culture may not do it for this group of employees.
Employers should also expect heavily indebted employees to be risk averse. In other times, that might have meant staying with a steady employer for the long haul. Now, it’s just as likely that the employee never stops looking for a job. An increasingly valuable employee with two or three years of experience and a decent looking resume may be very hard to hold on to. Time to discuss a raise?
Employers may be able to build recruiting programs and foster loyalty with paid internship programs, particularly for graduate and professional students. On a grand scale, this might actually increase the pool of students willing to think about employers who can’t pay top dollar because the students will have taken on less debt.
July 02, 2015
This is one of those managerial headaches that may make life on a desert island look attractive. You don’t want to lose the customer or expose your business to accusations of wrongdoing, but you also …
November 05, 2015
Employee Performance Evaluation If you scan through the national newspapers you will find article after article about managers and supervisors who are agonizing over the behavior of employees. Sometimes this agony is brought about by the …
September 30, 2015
Nasir and Matt talk about a judge in New York awarding a business owner $1,000 as a result of a bad Yelp review left by a disgruntled customer. They also discuss a recent lawsuit appeal …
September 17, 2015
Diversity in the workplace, a totally laudable goal, is actually harder to achieve than many employers appreciate, and ill-conceived or badly executed efforts can actually make things worse, opening the door to legal liability. To …
January 21, 2016
The name brand ambassador says it all. Similar to an ambassador for a foreign country, the goal of that person is to represent the brand in a positive light and bring consumers closer to the …
January 11, 2016
Nasir and Matt kick off 2016 by discussing how one Indianapolis bar responded to a negative post on its Facebook page. Transcript: NASIR: Welcome to our podcast where we cover business in the news and add our …
December 11, 2014
I once worked for a company that had been rumored, maybe, at some distant time in the future, possibly, but not certainly, perhaps in connection with a potential sale or not, to be tentatively considering …
December 16, 2014
Staying compliant with advertising and marketing is simple if you focus on just being truthful and clear with your customers. The rest is just understanding some subtleties on how to navigate the common legal traps in …
September 30, 2014
Truthfully, most sellers don’t want to take back paper. An all-cash deal often looks like the easiest and cleanest way to get on to the next venture, much preferable to waiting for another 5 to …
Fox News Sexual Harassment Case Highlights the Need for Effective Sexual Harassment Policies and Procedures in the Workplace
July 26, 2016
Workplace sexual harassment has been grabbing headlines lately, thanks to charges filed by former “Fox & Friends” co-host Gretchen Carlson against Fox News Chairman and CEO Roger Ailes. Carlson has alleged that Ailes fired her …
We may have only just begun to appreciate the economic impact of student loan debt. Students feel it first, of course, but small businesses are not far behind. Entrepreneurs must manage their own educational debt to continue to build and invest. At the same time, they may have to be creative in anticipating the effect student loan debt will have on customers, clients and employees.