Starting A Business With Student Loan Debt

If you are looking to start a business with student debt then here are some key points to consider and much more.

Updated by Nchumbeni Yanth on 24th February 2020

A business with student loan debt sounds impossible. Hopefully, there are guidelines explained in this topic which are key to building business success, with a heavy student loan debt.

A recent report expressed difficulties that graduates often face in abundance. Graduates who have $30,000 or more in their student loan debt were 11% less likely to start a business than debt-free graduates. 

There are 90% of massive issues on student loan debt in the U.S. 

Americans owe over $1.4 trillion in student loan debt among 44 million loan borrowers and are growing. Whereas, 70% of students who graduated this year with loan debt, have an average of around $35,000 from $13,327 since 1995. A current student of Stanford graduate carrying a debt approximately half his education receiving 96 loan rejections letters, when seeking capital for a small gym franchise as a startup. Nevertheless, never lose hope, for there are several business strategies to going forward to building a successful business as explained below.

Table of contents:

What is student debt?

A student loan is defined as the amount owed by an individual, formerly withdrawn, or students studying or passed out to a lending institution, or financial institutions.

American is one of the places with a student loan debt crisis.

Statistics of student loan debt in America:

  • $1.41 trillion in 2019.

  • $1.53 trillion currently in 2020.

  • $37,172 average student loan debt amount.

  • $393 per month average student loan payment.

Key Points to start up a business

Either debt or debt-free, starting a business is complex or complicated when you lack key points.

Apply key strategies as described below

1)Manage and understand your debt

It should be the first step towards a simple easy life as a small business owner. List out all the details who your loan servicers are. Simplify and clarify your loan doubt, contacting the loan servicer listed on your loan statement.

Under the following plans listed below:

Consolidate Loans

You can cut all your variables through consolidating your student loans, as they come from few or many different sources with different terms, interest rates. This is simply easy to do through your bank or another loan provider, consolidating will mostly give you a better rate because it makes the amount of a single loan higher. It updates you and to manage your debt by having the overall details in one.

Make sure when you refinance to obtain a lower interest rate in a way that won't cause you to lose any federal loan forgiveness programs.

The states cites that, if you are currently taking advantage of such programs such as teaching in low-income areas, working in nonprofits, nursing, law enforcement, etc, then consolidating your loans could have an impact or affect the terms of that loan forgiveness.

Private Loan Refinancing

In this program, you can combine your private loans and federal loans, or just one into a single loan. Not only will it benefit from simplifying your monthly payments, but based on your credit score and income, it could reduce your interest rate. If you have federal loans and your credit score is good, you'll likely qualify for an interest rate that's lower than the fixed federal rate. Refinancing can allow you better loan rates. Refinancing with a cosigner could qualify you for even lower interest rates.

Also, refinancing federal loans with a private loan, they'll not qualify for any federal loan programs, including income-driven repayment plans.

Federal Loan Consolidation

In this case, your option is to consolidate with a Direct Consolidation Loan. It allows you to combine your multiple student loans into one loan. You cannot consolidate private loans within a federal consolidation loan and doesn't offer the benefit of reduced interest rates based on your private score, but still lowers your monthly payment by extending up to 30 years.

Basically, if you have older loans like FFEL, Perkins loans, consolidating can qualify your loans for IDR plans and other federal programs where they would not have qualified before.

Income-Based Repayment (IBR)

If your loan is from a federal loan, you might have chances to qualify for the forgiveness programs cited above, such as Income-Based Repayment (IBR), Pay As You Earn (PAYE), which cap your payments per month to a percentage of what you earn, not what you owe. It means that if your income stops altogether, you may have a zero balance per month. So, monthly payments under IBR and PAYE repayment plans are capped at 10%-15% of your discretionary income.

Note: You have to be eligible, file an application with the department of education per year. It also means you'll accrue burden through interest over time. So, manage to pay it off per month or monthly, which will be a good option to reduce burden.

In addition, the best part is that any balance remaining after 20-25 years of consistent payment will be totally forgiven after that point. Qualify for this route, refinancing the loans later might cause troubles. But it's a great option if you need to deduct monthly costs and are experiencing low income, as it has a good impact after a point date.

Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE)

Using the PAYE program, you can pay 10% of your discretionary income monthly. Payments will never exceed what you would cover on the standard 10-year plan.

Also, if you have older loans from before 2014, the PAYE and REPAYE plans allow you to reduce monthly payments more than IBR.

Non-Traditional Refinancing

If you are dreaming of starting a business with loan debt, worry not, for there are multiple startup loan providers and your subway ads too, such as in companies like SoFi, CommonBond, LendKey, and Earnest.

But cites that “but to qualify for most loan refinancing, your credit score has to be on good terms in the high 600s at least”.

Also, you are not eligible if your loan record holds any bankruptcies or defaulted student debts.

The startup loans tout much lower interest rates by consolidating your loan debt through their loan services.

How do they do it?

Make sure that refinancing through a non-traditional source (e.g., less established companies) does not cause you high fees or future risk. Such companies are investing in curbing millennial debt, in the hopes that they'll use their services for more lucrative financing programs like mortgages and small business loans.

SoFi provides an appealing Entrepreneurship Program that anyone can apply for. It's made especially for people with loan debt who want to start small businesses. It includes financial counseling programs, networking and mentoring.

Deferment and forbearance 

It is another option to defer your payments overall. You can temporarily stop your monthly payments until you are ready to start again. It can be done simply by clicking a button on your loan provider's website. But consider deferment as the last option. A temporary debt relief causes you long-term burden attacks.

The Entrepreneurship Program cites that simply stretching the term of a $35,000 federal loan from 10-25 years triples the interest rate due over the period of the loan, from $13,000 to $39,000.

Income-Contingent Repayment (ICR)

ICR covers your monthly payment based on either on 20% of your discretionary income or whatever you would cover on a 12-year repayment plan.

A good option if your income disqualifies you from the IBR plan. Income repayment plans (such as IBR, PAYE, REPAYE, and ICR) may qualify you for loan forgiveness after 20-25 years of consistent qualified loan payments.

Keep in mind that IDR plans are federal loan programs, they won't apply you to private student loans.

2)Handling federal loan repayment plan

Getting enrolled for the correct repayment plan can make all the difference with your startup in a successful business with a loan debt or the opposite. Changing and adjusting your repayment plan gives you more flexibility in funding. Federal loans come with a 10-year repayment plan. You can opt for:

Extended Repayment Plan

You can extend your repayment term to 25 years which will reduce your monthly payments as compared to the standard ten-year-plan. The more you take time to pay, the more the loan accrues to pay off the interest and the more you'll pay overall.

Graduated Repayment

This option is the best option if you are confident with your start business to grow to profit in the next 10 years. A graduated repayment plan will grant you fewer payments at first and increases your overtime period basically two years. But, you still have to pay off for the next ten years.

3)How to get/acquire funding

Once you handle your debt in control, it'll aid you with a funding or financing plan. Assess what's good for your business as no two businesses are the same, as no funding option is truly better than the other option.

Small Business and Startup Loans

A small business loan could consider you to start a business. But, often it depends on your credit score preferred by lenders.

Angel Investors and Venture capitalists

Angel investors have a positive nomenclature for a moderate stake for a start-up business, for changing people's live through business.

Sites like AngelList provide an easy way to connect to investors. You can also connect them through your local chamber of commerce also. If you have a good business plan, seek to work with the angel investor , also willing to give up some of your equity.


Sites like Kickstarter, Indiegogo and GoFundMe, provide immense outsourcing for securing funding for your business or product plan. A great way to gain traction before incurring overhead costs. It can be a gateway to securing professional financing down the line. 

Crowdfunding is a good tactic to consider when starting a business with student loan debt.

However, it depends on your improved marketing and public interest in your business production.

Worried about your college tuition? Find the best student loans suited for you

Induce creativity to start your business

Take a good note on the following:

Take good suggestions

There is no guarantee advice for starting a business with a student loan debt. Nothing will make your student loan debt easy as an at-risk debtor but there are some best-tried practices one can acquire to make your business successful as an aspiring entrepreneur.

Plan your living expense

Budget your living appropriately such as handling apartment expenses, cost of the living way down, beneath your means if you have a business to start along with a student loan debt. 

Even if you qualify for consolidation, refinancing, or deferral, and you lack financial support, it will be difficult doing a business while repaying your student loans.

Punctuality towards a payment

Make your payments on time and date as a top priority. It'll help you build a good credit score that lenders will consider you as eligible when applying for a small business loan.

Work with an experienced person or financial pro

Get help from where you can as necessary, find mentors or professionals through your local chamber of commerce or small business administration's small business counseling program.

On a concluding note

Aspiring entrepreneurs are the window to future business programs. And with careful plans, strategized aims, starting a business with a student loan debt is boosting within your goal.

In the above guide mentioned, it eased your concerns about starting a business with a student loan debt, to everything you need to know about the corporate world. 

The point is, learn to deal as a debt-risk person to a successful entrepreneur, or business person.