Young Entrepreneurs and The Student Debt Trap

By Diana Wright, ISU Pappajohn Center for Entrepreneurship

Picture Yourself:

  1. You go to college to pursue a degree.
  2. You attend career fairs in hopes to land work experience through internships/coops.
  3. Junior and Senior year, you start to search for your first full-time job after college.
  4. You have an idea in the meantime, an itch to start an entrepreneurial endeavor. Sometime before graduation, you join in an Entrepreneur program from ISU. Heck, you may even have a friend or colleague that shares a similar desire to create and run a business, and wants to be part of your team.
  5. Curious to see if your ideas have real merit, you join an entrepreneurial program like the Pappajohn Center’s CYstarters (which, by the way, garners some applause that you got a start) and you take a summer off to pursue your business idea in a serious fashion (while being paid).
  6. You graduate. You are running your startup business. Things seem fine until you start to budget for your personal expenses. What do you need to make in order to cover your personal AND business expenses this month?
  7. And then it hits. The Student Loans kick-in this month— it’s repayment time. How do you make enough money to grow your business and pay $300–500 each month for student debt? Do you keep your business going, fold-up shop, or resign yourself to start the job search?

Are the Millennials the Lost Generation of Entrepreneurs?

NY Times article “For Young Entrepreneurs, College Debts Can Snuff Out Start-Up Hopes.” Catherine Berendsohn in her parents’ home in Miami last month. Her student debt prevented her from getting the money she needed to grow her own business. Credit Scott McIntyre for The New York Times.

Because of the negative impact of student debt on startups, millennials may be the new lost generation of entrepreneurs, according to an article in the New York Times, January 2017.

As a nation, we know that student debt has spiked the last 5 years. At Iowa State University, the average four-year undergraduate degree leaves a student with an average $28,880 in debt (based on enrollment in fall 2013). Students employed after graduation can feel trapped. But what about the normal ‘bootstrapped’ startup entrepreneur after graduation? How does student debt impact these graduates?

Good News… You are living in The Age of The Entrepreneur.

Traditionally, for previous generations such as the Baby Boomers, being an entrepreneur and going out on your own used to be very risky and wasn’t the normal path after graduation. Large corporations hired the best and the brightest for over 30 years. When corporate recruiters asked the typical “Where do you want to be in 5 years” question, closet entrepreneurial students dare not answer the truth that was in their hearts, “I want to start my own business.”

Time marched on and the The Age of Bureaucracy gave way to the Age of The Entrepreneur around 2000. Since 2007, we have been in the Age of Acceleration (according to Tom Friedman, author of Thank You For Being Late). During this time, Millennials, the digital natives, have been naturally drawn to starting businesses, hoping to make an impact in the world.

Same Challenges…Different Solutions

Given the amount of large debt so common to Millennials, some student entrepreneurs still pursue a path similar to previous generations, such as these three options:

  1. Postponing your entrepreneurial dream by gaining experience first through a company and starting on a career path. (What my parents called “Let someone else pay for your first mistakes” approach.)
  2. Working on a your business part-time to test your concept, while working full-time elsewhere.

3. Taking the plunge and working in your own business right out of school.

Now there is new option — starting your business while in school.

While still risky, you have reduced the risk by vetting your idea while an undergrad, and moved with speed through new programs available for student entrepreneurs (something previous generations didn’t have available to them).

The #1 Biggest Obstacle: The Student Debt Trap for “The Bootstrapping Entrepreneur”

Iowa State students, Steven Brockhus (founder of Terva) and Clayton Mooney (co-founder of KinoSol), share strategies on marketing their startup businesses.

It is common for many startups to use the “bootstrapping” method of funding their operation for future growth. This means using personal assets, cash, credit cards, and private loans from family and friends. With $300–500/month going towards student loans, this limits the amount of borrowing from these sources, given cash flow can be shaky and unpredictable in a startup phase.

Even if your business starts to take off, getting more funding to grow can be difficult due to the student loans taking up too much of your borrowing capacity as viewed by banks and traditional funding sources. Getting a business loan with student loan debt can be difficult, even for the most dogged, driven and determined entrepreneur.

How ISU Students or Post Grad Entrepreneurs overcome The Student Debt Trap

First, begin your Entrepreneur Journey at Iowa State as early as you can.

Iowa State students participating in the student accelerator, CYstarters, work in the new ISU Pappajohn Center/CyBIZ Lab collaborative space, located in ISU Research Park. Photo by Chris Gannon, ISU University Relations

Here’s why:

  1. No matter what your major is, entrepreneurship is important across all colleges & universities. The sooner you jump into this E-playground and explore your ideas and your passions, the more time you have to take risks. Apply your campus learning into your real business. Take action and use all 4 years of your undergraduate time to grow your business. Plus, you will be surrounded by like-minded students to collaborate with, share talents, and gain new ways of looking at problems.
  2. Businesses have long been a favored wealth creation strategy. In exchange for taking risks, the reward of a successful venture is that you can create wealth faster than by trying to save money after your expenses have been paid. By starting a business while in school, you are getting a jump-start using this wealth creation strategy. For new graduates, the reality is that it is a struggle to save any money after you factor in student debt of $300-$500/month and the normal living expenses. The sooner you start a profitable business, the more money you have to overcome the Student Debt Trap.

3. Iowa State has built a ladder of programs for the E-minded student. There is no better time to be a student entrepreneur. Invest your time in Iowa State’s academic programs. This fall, Iowa State’s College of Business will be the first state university to offer an undergraduate major in Entrepreneurship. Learn by doing through free programs at ISU Pappajohn Center and ISU Ag Entrepreneurial Initiative. Test your ideas, gain traction, begin operations, and even find investors so you don’t have to worry about The Student Debt Trap.

4. Build immunity to failure. In a startup, there is no failure. It’s all about taking action, learning, tweaking, testing, acting, and starting this cycle all over again. This is how you learn from mistakes and grow quickly. Set the intention that your business will be profitable within the first few years. Be realistic about setting goals, including taking home enough money that you can begin paying off your student loans faster.

5. Build relationships now and network with investors, bankers, and venture capitalists, who are part of the ISU Entrepreneurial scene. At Iowa State, the connections and people are all in one convenient place — which saves you time.

Success Leaves Clues

“Empowering. That’s what this summer was for me. CYstarters empowered me to start my own Ag Tech company. We empower agriculturists as they navigate the farmland real estate marketplace.” -Steven Brockshus, Terva

It’s no surprise that successful entrepreneurs take advantage of programs offered at ISU. Follow their lead. Explore the ISU Entrepreneur Club, Pitch Competitions and Conferences, internship opportunities with startups. Take an E-class, or go through our Summer Accelerator, called CYstarters.

At Iowa State, Millennial Entrepreneurs are alive and well. They are overcoming the Student Debt Trap. The only question is, what are you waiting for? Come join us as we transform our communities, our state, and the world.

Join the EntreBOLD network at Iowa State. Stay up-to-date with our e-newsletter — sign up here!

For more information on the 2017 CYstarters program, click here. Applications are accepted through March 29.

Any questions or comments? Reach out to Diana at dkw [at]