Editor’s Note: This is the first part of a two-part series on entrepreneurship and student debt. In Part 2 we profile the co-founder of a company that’s helping young people minimize debt and get smarter about money.

What can be done to ease women's student debt burden? (Credit: Faustin Tuyambaze, StockSnap)
What can be done to ease women’s student debt burden? (Credit: Faustin Tuyambaze, StockSnap)

Once a month, Ann-Erica Whitemarsh pays a bill that “makes my skin crawl.”

The 33-year-old founder of Rascal Rodeo, a Pasco, Wash., nonprofit that hosts events for people with special needs, has spent years chipping away at her student loan debt, which totaled $60,000 when she graduated from Warner Pacific College in Portland, Ore., in 2008.

She lived with her parents to save money while trying to find a job after getting laid off several times during the Great Recession. In 2010, she pulled together what savings she had to launch Rascal Rodeo, growing it slowly while continuing to make her monthly payments. Today, her balance hovers closer to $34,000, after parting with $700 every month to repay her debt plus interest.

Whitemarsh’s debt burden delayed both personal and professional plans, she says, blocking dreams of home ownership and interfering with starting up her venture. “It took me a couple of extra years. I had to focus more on making sure my loans were paid, rather than being able to put the time and money toward Rascal Rodeo.” Things didn’t get much easier after launching. “Because of the financial burden of loans, I wasn’t able to save any money. I lived paycheck to paycheck.”

Whitemarsh is far from alone in her struggle. Roughly 44 million borrowers in the United States carry about $1.3 trillion in outstanding student debt. Women account for two-thirds of the sum, or about $800 billion, according to a recent report by the American Association of University Women (AAUW).

[Related: Series Part 2: This Fintech Entrepreneur Is Banking on Disaster. Literally.]

The expense of loan payments often cuts into female founders’ efforts to bootstrap a business — or use a combination of personal finances and early revenue for funding — which is the most common way entrepreneurs fund startups. The nation’s student debt burden is almost certainly weighing on startup rates and economic growth — not to mention, people’s dreams.

As Whitemarsh summarizes it: “I probably would have started up sooner, if I weren’t so focused on having to pay that monthly bill.”

A Multifaceted Problem

Jennifer Beall Saxton, founder of Tot Squad, tells a similar story. She earned a bachelor’s degree from Duke University in 2005, then a master’s from Northwestern University’s Kellogg School of Management in 2010. Along with two degrees, she graduated with $75,000 in student loans to repay.

Even before finishing school, Saxton wanted to start her Sherman Oaks, Calif. company, which installs and repairs baby gear in homes and cars — she calls it the “Geek Squad of the baby industry.” But like Whitemarsh, her student loan debt held her back, and she wound up having to work full-time while trying to grow the company.

“I launched the business the same week I started back at work,” she recalls. Despite the $50,000 no-interest tuition loan offered by her employer, The Wonderful Company, she still needed the extra income. “I was in the office from 9 a.m. to 3 a.m. every day, working on both jobs, 8 hours at each, for almost 2 years.”

Jennifer Beall Saxton, founder of Tot Squad. (Credit: Tot Squad Facebook page.)
Jennifer Beall Saxton, founder of Tot Squad. (Credit: Tot Squad Facebook page.)

Such struggles are widely shared by young people who ought to be the country’s entrepreneurial future. About 48 percent of millennials say student debt hurt their ability to launch a new venture, a 2016 poll from Small Business Majority finds. Perhaps as a result, millennial startup rates are low, even though theirs is a generation that reveres entrepreneurship. “The share of people under 30 who own a business has fallen by 65 percent since the 1980s and is now at a quarter-century low,” The Atlantic reports.

Women suffer particular harm, says Kevin Miller, a senior researcher and the author of the AAUW’s recent report. Women carry more of the nation’s student loan debt, in large part, because they are now the majority of college students. But because of the pay gap, they have fewer available funds with which to repay those loans, he says. As a result, they make lower payments per month than their male counterparts and carry debt longer.

Dolores Rowen, research manager of the National Women’s Business Council (NWBC) adds that the rising cost of higher education in the U.S. compounds the problem. “Since 1975, there has been an increase of over 150 percent in tuition costs, with a relatively low median income,” she says. That means women’s student debt burdens are higher than ever, and they don’t have enough resources to handle them.

The situation is worse still for women of color. According to the AAUW report, “the pace of [loan] repayment was particularly slow for black and Hispanic women, as well as for men in those groups.” Along with the difficulty repaying student loans has come higher default rates —  women default more often than men, and black and Hispanic borrowers default much more often than white and Asian borrowers. Of course, defaulting on debt can have long-term financial consequences, like reduced access to credit.

Miller says that women with long-term student debt will pay their financial institutions handsomely. Women who take longer to pay off these bills can “expect to have more interest accruing over time — it’s a pretty big deal,” because it makes the total sum they will pay even larger. High interest rates were pain points cited by both Whitemarsh, who carried a loan with a 7.75-percent interest rate, and Saxton, whose largest loans had interest rates between 6.8 and 8.5 percent.

Rowen says the resulting burden leaves women grappling with higher expenses to manage each month, which could prevent them from putting their money toward starting and growing businesses.

Finding a Better Way

Early drafts of the 2017 Tax Cuts and Jobs Act included headline-grabbing amendments to tax code that would have done away with deductions for student loan interest and turned graduate tuition waivers into taxable income. Though those provisions did not make it into the final bill, the controversy highlighted policy issues related to student debt.

The NWBC’s Rowen says the council’s top concern is the gender pay gap, because it hurts women’s ability to pay back loans and “impacts access to capital and a future desire to start a business,” she says. She would also like to see more emphasis on apprenticeships and workforce certification programs. Women can start companies with various levels of education, she explains. “A 4-year degree is not necessary to start a business,” and alternative programs cost less, resulting in smaller debt burdens.

Another policy idea that could make a difference, Rowen says, is a proposal, now in an “exploratory stage,” to create a federal government debt-forgiveness program tied to meeting entrepreneurial milestones. As described in NWBC’s annual report, such a program would forgive debt when participants reach business success benchmarks, such as annual revenue and full-time job-creation targets or proof of investment by other stakeholders.

The result could be both eased debt burdens and increased startup rates. She cites StartupHoyas at Georgetown University, which has a stipend program that gives vetted participants money to cover debt payments, as a step in the right direction.

Miller also suggests creating better payment plans based on income. “This is particularly relevant to entrepreneurs who are just getting started. Their income is quite low, and they would greatly benefit from small payments while their business gets off the ground.”

Their Work Continues

Today, Saxton is thriving. She took the leap, and began running Tot Squad full-time in 2012. Since then, she has raised $2.1 million in angel investment, thanks to a leg up from investor Michael Kane and personal finance company SoFi’s Entrepreneur Program.

Now, she works with Uber, cleaning the car seats used in the taxi company’s family program in New York City. And she’s in talks with a car rental company to do the same at 60 major U.S. airports. She has opened brick-and-mortar locations in four U.S. cities and has technicians in more than 40 states, she says.

SoFi also helped Saxton defer her loans and negotiate a lower interest rate in exchange for accelerating her payback period from 10 to 5 years — a huge relief, given she was paying more than $1,000 per month. She estimates this move saved her over $5,000 in the long run. She finished repaying her graduate student loans last summer, and has now been able to buy a home and take on a mortgage.

Ann-Erica Whitemarsh, founer of Rascal Rodeo. (Credit: Joel Nunn-Sparks, Rascal Rodeo Facebook page.)
Ann-Erica Whitemarsh, founer of Rascal Rodeo. (Credit: Joel Nunn-Sparks, Rascal Rodeo Facebook page.)

Saxton still owes about $10,000 in undergraduate loans, but because of a low interest rate, she’s paying it off slowly. “It was a strategic decision,” she says.

Whitemarsh also says her loans are less of a roadblock today, but that ripple effects continue. “I don’t think it really impacts [Rascal Rodeo], but it impacts the way I get to live my life,” she says. “That could be a house payment.”

She did receive a significant break, however, when her parents offered to pay off her loans, which she had consolidated and paid through Wells Fargo, and have her pay them back with 0.5 percent interest, the rate the money would have earned if it were still in their savings account at the local credit union. This maneuver allows her to be rid of the debt sooner, and saves her thousands of dollars — not to mention a significant amount of stress, she says. Now, she happily writes her monthly check to them.

Moreover, Whitemarsh reports that her organization is “thriving greatly.” Since launching it in 2010, it has expanded from one rodeo to 16 held throughout Washington, Oregon and Idaho. Now, potential partners in more than a dozen other states have expressed interest in bringing her programs to their towns.

The trouble, she says, is “it just takes more money to be able to continue to grow.”