Starry-eyed and filled with dreams, newly minted college graduates embark on their career paths, many with entrepreneurial aspirations and hope for the future, only to be stymied by their student loan debt, placing those hopes in doubt.
Those with entrepreneurial aspirations may have help with President Barack Obama's reform of the Income Based Repayment program and a new initiative by Young Entrepreneur Council founder Scott Gerber to invest in young entrepreneurs' businesses.
For the first time, student loan debt exceeds that of credit cards. President Obama on Oct. 26 addressed this when he announced his plan to help students with their loan debts. The average starting salary for May 2011 graduates: $33,000. The average student debt they will graduate with: $24,000. If there was a deterrent to starting a business, this is it. This is a catch-22 for the economy as well, as most jobs in America result from startups and entrepreneurialism.
President Obama, in partnership with such organizations as the Young Entrepreneur Council and Start Up America, announced a plan to tackle the student debt problem. As part of the existing Income Based Repayment Program, the plan will reduce the percentage of a student’s salary used to pay back loans from a 15 percent current cap to 10 percent, with the new “Pay as You Earn” incentive.
This will benefit graduates employed at lower wages by helping to ease their financial strain. Also, President Obama’s plan will reduce debt forgiveness to 20 years from its current rate at 25 years and offer students the option to consolidate their bank loans with their state loans, resulting in one payment per month instead of several monthly payments to different financial institutions. As further incentive to consolidate, 0.5 percent will be shaved off their interest rate, saving them hundreds of dollars overall.
In conjunction, Gerber's new initiative, Gen Y Capital Partners, is the first private/public partnership with Income Based Repayment. "The White House's reforma to the Income Based Repayment program will unlock startup and operating capital for countless numbers of aspiring, college debt-ridden young entrepreneurs," Gerber told SUCCESS. "By pairing its benefits with Gen Y Capital Partner’s various tools, we will be able to remove many of the barriers to entry from the startup equation, and create a new scalable approach to investing in our nation’s most promising Millennial entrepreneurs."
President Obama’s reform plan will also include a social entrepreneurial aspect: Any graduate who accepts employment in nonprofit organizations, teaching or nursing will have their debt forgiven after 10 years.
In a truly collaborative relationship, young entrepreneurs and the government will work together to create jobs, help spur the American economy and encourage starry-eyed dreamers.
Scott Gerber is author of Never Get a "Real" Job.