Starting a business is one of the most daunting challenges one can undertake. It becomes infinitely harder if you do so while you have student loan debt.
Securing funding for a business with student loans has its own set of unique challenges. However, it is possible to finance your business when you have student loan debt.
You do not even have to finish paying off your student loan to get financing for your business. If you are an entrepreneur fresh out of college or still have massive student loan debt, you can still start a business while paying off your debt.
The following is how you can do it:
Refinancing
You can try refinancing your student loan, allowing you to start a business while paying off student loan debt. You will need to have good credit, which means a credit score of 700 and higher. If so, you can refinance your student loan to a lower interest in a process called private student loan consolidation.
You will be able to pay much less with a private student loan, such as with this student loan with a low interest rate. You can also increase your repayment term to pay less per month but for a more extended period. Though it may result in higher overall interest payment, it will allow you to start a business.
Income-Driven Repayment
Paying student loans will often depend on your income. You will be required to forfeit a percentage of your income to repay the student loans, referred to as income-driven repayment.
You can choose an income-driven payment plan which is an excellent option when starting a business. Your interest payments will be capped at a certain percentage of your income with such a plan.
Therefore, you can create a business and pay very little in student loan repayments until your business starts making money and you increase your income.
Consider Alternative Funding Options
When starting a business, you will require funding to finance your business. If you have student loans, traditional avenues for funding, such as business loans, may not be viable as you will be considered high risk by lenders, or they will charge you astronomical interest rates. Therefore, it would be best to consider alternative funding options for your business.
Angel investors can help fund your business if you can sell your idea, and the same goes for venture capitalists. If that does not work, you can try finding small business grants in your industry, which often don’t have stringent requirements. Crowdfunding is another way to fund your business if you still have student loan debt.
Forbearance And Deferment
You can use forbearance and deferment to delay paying back student loans later. If you are experiencing economic hardship when starting your business or student loans become overwhelming, you can use deferment for your student loans, meaning you won’t have to make payments until your situation improves. In some cases, your interest will not add up during the deferment period.
You can also ask for forbearance if you have federal student loans for various financial reasons. The forbearance period can be as long as a year and longer in some cases. Deferment and forbearance differ because interest will definitely accrue in the latter, but it might not in the former. You will owe a lot after the forbearance period, but if your business succeeds and your income increases, you can pay it back.
It is up to you to speak with your student loan officer to find out which options you have. The above are a few ways you can start a business while still paying off student loans. Do not let student loans stop you from your dream of being a business owner.