How Student Loan Debt Prevents Female Founders From Launching

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Creative entrepreneur Catherine Berendsohn is feeling the full weight of her student loans.

“It’s been a weird circle you keep going in. I don’t have the funding to get started. My life has been really saddled and I feel like I never got to launch. No matter how many times I keep trying. My life is passing me by.”

Having moved home to Florida due her lack of ability to pay her student loans, living expenses, and launch a company while living in California, Catherine was able to cover some of her living expenses to help support her business by living closer to family. However, the tradeoff was that she lost her bustling network of creative consulting gigs in LA, as well as the knowledge capital gained from other creative entrepreneurs in the thriving design spaces of SoCal. Without a network to grow her business prowess and a lack of consulting clients in her immediate vicinity to sustain her business income, Catherine decided she needed to go back to school if she was going to get the tools she needed to launch a company.

“It’s a catch-22 because I’m going to start loading on tons of [new] debt,” she says.

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Women own about two-thirds of current U.S. student loan debt.

Catherine isn’t the only female founder trying to launch a company with student debt. The current U.S. student loan debt ranks somewhere around 1.5 trillion dollars. According to a report by The Association of College Women, women own about two-thirds of that student loan debt.  This, in part, has to do with women outnumbering men in college enrollment and graduations rates.

But even with women currently being the most educated group within the country, according to Forbes, they are starting their lives in the red due to the one-two punch of student loans and the gender pay gap. The gender pay gap upholds major inequalities in income, with women making between 56% - 80% of what most white men make, pending on their racial makeup. Combined, student loans and the wage gap create the perfect storm to put women at a huge disadvantage to pay back these loans while also still paying for their own rent, healthcare, savings, and childcare.

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“It’s a catch 22 because I’m going to start loading on tons of debt.” Catherine Berendsohn

And that is just for the women with student loans who are able to secure salary jobs and aren’t taking the jump into startups. Female founders have the additional tasks of finding ways to funnel away their funds for startup costs, savings to pay their rent and living expenses during the development process, their own healthcare, and preferably, have something on the side in case everything hits the fan.  

All of this means that when female founders are ready to start their companies, they are doing it with far less funding resources than their male counterparts. One research study shows that women have around 40,000 dollars less than men when they launch, with most of that money coming from their own savings. This gap is only exacerbated through the funding cycle - only 2% of all venture capital funding in 2017 went to women entrepreneurs, despite the fact that women are just as successful in growing and scaling their companies. One study recently conducted by SCORE showed that women report roughly the same entrepreneurial success, expected revenue growth and business longevity as men, all while operating on an unequal playing field.

Because the traditional sources of funding are not available to women, in order for female-founded companies to grow, going into more debt in order to gain the skill sets or money needed to build a company from scratch is often the only road female founders have to take.

In our Original Spinster interview with DesignerShare founder Sarah Perkins, we asked her about the decision to take on more personal loans in order to start her company.  She not only describes the overwhelming feeling of financial stress, but also, the personal effect it has on her self-image.

“At 27, you think of generations past and how far they were.” she explains.  “Despite everything I work for everyday and everything that we are doing, because my finances aren’t in a great place, I feel like a failure.”

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"You think of generations past and how far they were (along)." Sarah Perkins, DesignerShare

Still though, Sarah eventually decided to take on the equivalent of more student loans to build her company, borrowing money through the informal “friends and family” round and viewing her debt as commitment to making her company work.

Yet other women don’t want to or simply don’t have the resources to take that kind of risk that can’t be forgiven. Catherine Berendsohn also describes a similar sentiment to Sarah in terms of how both her past and current student loans have weighed on her.

“I ended up feeling burden and loaded down.” She describes of the mental switch that took place from her cheery optimism after graduating with her first degree to the experiences her student debt afforded her. “I didn’t understand the magnitude of what was going to happen. I always have this weight.”

However, unlike Sarah, Catherine’s next round of loans will be back with the government as she works on building out her masters degree in business.

“At this point, I have to defer [my startup] because when these things didn’t work out, it ends up spilling over. It affects the rest of your life.”