business loan for students

02.03.2020

Finance  |  7 min read

Can you really start a small business and also pay off student loans?

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Laura Dolan

The answer is a resounding yes, despite the following statistics…

According to Experian, as of 2019, outstanding student loan debt reached an all-time record of $1.41 trillion, and the average student graduated $25,000 in debt. That’s in addition to rent, which might eventually become a mortgage, car payments, utilities, entertainment expenses, clothing, food, and that’s all before one even considers becoming a parent, which can triple the cost of living. Where does it end? And, on top of all that, what if you want to pursue life as an entrepreneur?

For those who dream of starting a business, but are stunted by crippling student loan debt, there’s still hope.

Here are some questions to consider before launching your successful startup while paying off student loans:

1. Can you lower your student loan payments?

According to Student Loan Hero, the average monthly payment for a student loan is $393. Add that to the amount of other monthly finances and that number can feel suppressing, especially if you’re newly graduated with an entry-level income.

If you’re in this situation, there are ways to liberate money in your budget by lowering your student loan payment, thus creating more capital for eventually starting your own business.

Income-driven repayment

For those who qualify for income-driven repayment, monthly cash flow by can be improved by reallocating funds that go toward student debt each month, leaving extra money for startup capital.

The Department of Education offers programs that help college graduates manage federal student loans by limiting their payments at a percentage of their discretionary income.

Federal loan consolidation

Some may not qualify for income-driven repayment, in which case, consolidating federal loans can reduce monthly payments, taking loans with multiple payments from various services and reducing them into a single, manageable bill. This type of consolidation streamlines repayment that yields a longer loan term, which lowers monthly payments.

Refinance student loans

Refinancing can help lower interest rates and payments on student loans, but be aware that refinancing federal student debt means losing access to income-driven repayment and other programs, so think of it as a last resort. If refinancing is the best option to save money and create a little breathing room for your startup budget, then it may be the best way to go.

Pay off student loans early

Easier said than done, of course, but once your business starts gaining profits after you’ve utilized some of the payment strategies, paying down student loan debt as fast as possible will help you be in the best financial condition.

Make paying student debt a priority; you may be fortunate enough to be in a position where you can start making larger payments and pay them off early, leaving more breathing room to expand your business and improve your credit.

2. Are you staying on top of your student loan debt?

One thing you never want to do is miss a student loan payment, as doing so can ding your credit, making it more difficult to qualify for a desirable business loan for students who have accumulated debt.

You always want to ensure you’re protecting your credit rating and maintaining a healthy score so you can leverage your financial good standing when the time comes to think about applying for a business loan. Consolidating, refinancing or establishing income-driven repayments will assist in allocating enough funds toward student loans, eliminating the need for deferment due to economic hardship.

3. Are you ready to make your business a priority?

While you’re waiting to be in a healthy financial situation to initiate your startup, create a business plan. Determine a realistic road map that you can follow to help your business move forward with your priorities in check:

  • Do you have a solid product?
  • Do you have a way to market that product?
  • Will you have an ecommerce business or a brick and mortar store?
  • Have you staked out a physical location for your business?
  • Have you applied for a business license/name?
  • Do you have people in mind to help you with your promotion?
  • Do you have enough money to pay employees to help you?
  • This list is just for starters and if it seems intimidating, make “one day at a time” your mantra. Thinking about the big picture will make you want to rethink the whole concept.

    4. How can you maximize your monthly cash flow?

    Prioritize your cash flow so you have more capital for your venture. If you have credit card debt, you can refinance your payments and reduce your interest rate. Some programs even help you transfer your outstanding balance to another card that’s interest free, taking some of the pain out of not being able to pay it off every month.

    Another way is to reduce living expenses. While you’re earmarking funds for your new business, sacrifices will have to be made. Instead of going out to eat, make as many home cooked meals as possible, even if that means having to live off peanut butter and jelly sandwiches for a couple of years, which will make for a great origin story later.

    Try to resist spending money on entertainment such as going to the movies or making impulse buys that you just can’t afford right now. Go without as much as possible; living a bare-bones existence will make it easier to flesh out the components of your small business that are going to require extra funding.

    5. Can you find ways to stay motivated?

    There’s going to be a lot of self-doubt along the way toward building a startup so be prepared, it’s normal. Expect good days and bad; you may even feel like you’re experiencing a Jekyll and Hyde complex along the way.

    The point is to never give up. No one ever said creating a startup was easy, which is why it’s so respected and impressive when someone makes it happen. It creates an inspirational story for anyone who dreams of being their own boss one day.

    Look at challenges as ways to stay motivated and learn; starting a business puts anyone on the path of a steep learning curve, but just think how much better for it you’ll be when you come out on top.

    Stay focused on your passion; why did you start the business in the first place? Answering that relentless question on your entrepreneurial journey will help you stay focused through the tough times and provide motivation to power through setbacks, regardless if they’re major or minor.

    Succeed in business despite student loans

    Never let your debts slow you down, especially student loans. There are so many ways to work around them and still have enough money to pay your monthly expenses and become an entrepreneur.

    If you follow your instincts, you’ll have a successful business that will help you pay off those loans, leaving more room for expansion, never looking back.

    Do you have a brilliant idea for a small business? Do everything possible to share it with the world. It will thank you later.


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