How to Start a Business When You Have Student Debt

So you’ve graduated college and are ready to start your own business. You’ve got a lot of new knowledge about the workforce, the marketplace, and what you want. But with a heaping load of student loans, how can you afford to make it all happen?

Burdensome student debt

With precise planning, managing your student loan debt isn’t as difficult as it sounds. We’ve collected data, tips, and solutions from all across the spectrum to help you determine the first steps into achieving your dream of being a business owner.

Here are a few key steps you should follow:

Know What You Owe

This is an important first step! Knowing the exact amount you owe will help you organize a payment schedule and set realistic expectations. You can find this out your exact amount at the Federal Student Aid website. If you’ve taken out private loans, you’ll want to check your balance with those lenders as well.

Make Payments

Equally important as knowing how much you owe is know when to send the check. Missed payments can affect your credit score, which, in turn, affect your likelihood of reaching small-business loans and other financing options down the road. Banks become weary when they see missed payments on student loans, so it is extremely important to begin paying back your student loans early and regularly.

If you’re unable to payback your loans in the full monthly amount, right away, there are alternatives to simply missing payments.

Student loan repayment and refinancing

Consider Consolidation and Refinancing

If you’re credit score is 670 or higher or have access to a creditworthy co-signer, you might be eligible to refinance your student loans to a lower interest rate. Also known as, “private student loan consolidation.”

This option is especially helpful when you have high-interest private student loans. Those with federal loans, might want to consider another option (listed below) due to refinancing federal student loans can sometimes result in eligibility for forgiveness programs down the road. As with all options, read the fine print and determine the best option for your needs.

Do you Qualify for Forbearance or Deferment?

Should you not be able to payback your student loans right away, no matter the amount, it is possible to postpone your student loans payments under certain circumstances. For example, if you are unemployed or dealing with economic hardship, you can apply for deferment of payments without the negative result of accruing interest.

You can also request forbearance for a wider range of financial reasons for up to 12 months at a time, however, interest will accrue over time making the amount you ultimately owe greater.

Income-driven Repayment Plans

If your student loans came from the federal government, you can sign up for income-driven repayment plans. These plans will make your payments 10-20% of your discretionary income, depending on the plan, which will significantly lower your payments. There are plenty of estimator tools available to determine what exactly your payments will be based on your income.

Evaluate the Market and Make a Plan

Ken Eulo is a founding partner of the Smith & Eulo Law Firm in Orlando, FL. He’s a criminal lawyer known for giving free consultations who graduated with student debt, so he was willing to give some free advice to those in a similar position.

“Before planning that extravagant grand opening with fireworks, billboards all over town, and discounted rates, you have to write a business plan that includes projected sales, revenue, potential losses, etc. This often missed step is the number one cause of business failure.”

Business startup mentor

Work with a Mentor

No one ever said you have to start a business on your own. Seeking help and guidance while determining a business plan, looking for funding, and getting up and running can be one of your greatest assets. Many organizations like the U.S. Small Business Administration’s have developed local assistance tools that can help you find small business development centers and free resources in your area.

Another organization is SCORE, who pairs entrepreneurs with volunteer business experts is a great option. Remember that degree you got? Ask your college’s alumni network if they can direct you to any entrepreneurs who are interested in sharing experiences, tips, and history. Many alumni service departments include outreach and networking programs that can become a major asset to your budding business ideas.

Explore Funding Sources

Start-up funding is one of the top issues all young entrepreneurs face, especially when you have student loans. Self-funding is always an option, but with limited resources as a result of student loans, it can be hard to get off the ground. It isn’t always easy to walk into a bank and receive a loan when you are still paying back other loans in your name. Consider these other options:

Crowdfunding: Loans from friends, family, and donors are a viable and well-accepted option these days to get an initial cash flow going. Sites like Kickstarter, Indiegogo, and GoFundMe allow you to share your business plan in a personalized, low-risk high-reward situation.

Lending Circles: Lending circles are comprised of community members who pay into a central fund, from which members take turns receiving small loans. Monthly payments are often reported to credit bureaus which aid in building back up your credit score.

Online Lenders: Online lenders like OnDeck Capital and Kabbage can help with a variety of business expenses. These small business loans are often easier to qualify for and can help in a pinch. However, higher interest rates, could affect your payout later.


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