How to Start a Business While Paying Off Student Loan Debt

Written by: Kristyn Pilgrim
Updated: 8/03/20

Are you excited to embark on a new business adventure but worried your student loans will drag you down? If student loan debt has you down, you’re not alone: The U.S. has reached a record-topping $1.6 trillion in student loan debt, and 45 million graduates are saddled with student loan debt.

If you’re looking to start a business, your student loan debt doesn’t have to be an obstacle that prevents you from pursuing your dream. In this guide, we’ll walk you through everything you need to know about starting a business while paying off your student loans.

Step 1: Plan and Assess Your Risk

Before starting any business venture, it’s a good idea to take a look at the risks involved. While higher-risk businesses can lead to higher rewards and gains, when you’re also working to pay down debt, you might want to invest in a less-risky venture to start.

When starting any business, you’ll be responsible for paying estimated taxes on top of fronting your business’s startup costs. It’s important to chart out all of your expenses and ensure you have a firm business plan before jumping into any venture.

You’ll also want to review your current monthly expenses, including rent or mortgage payments, food or grocery expenses, bills, credit card payments, and current student loan payments. It’s important to know what you need to pay each month to stay ahead, so you can plan to dip into savings or look into alternative funding sources while your business is getting started.

Once you feel confident in launching, you can start looking at how to pay off your student loan debt without getting behind in payments.

Step 2: Review Your Student Loan Options

Making student loan payments while you get your business up and running might seem like a daunting task. Luckily, many student loan providers, particularly federal student loan lenders, offer income-based repayment plans that could help you while you’re financially lean.

There are four repayment programs for federal student loans:

  • Revised Pay As You Earn Repayment (REPAYE) Plan: This program typically requires that you pay 10% of your income toward your student loans. You can expect to repay your loans for 20 to 25 years under this program. 
  • Pay As You Earn Repayment (PAYE) Plan: This plan also asks that you to pay 10% of your income, but the amount is set not to exceed the Standard Repayment Plan amount, which could save you money month to month if you need most of your income for business expenses and investments.
  • Income-Based Repayment (IBR) Plan: This plan is similar to the terms of the PAYE Plan, and you would qualify if your student loan debt amount exceeds your annual income.
  • Income-Contingent Repayment (ICR) Plan: If you have Parent PLUS Loans, the ICR Plan is the only repayment plan you can use to lower your monthly payments based on your income.

If you have private student loans, your lender might offer repayment plans that you can take advantage of while starting your business. If you do not see any comparable repayment plans, reach out to your lender to find out if there are any programs to assist you during this time.

Step 3: Find Out If You’re Eligible for Forbearance or Deferment

If you’re worried that you’ll have no-to-little income during your business’s initial startup period, you may qualify for forbearance or deferment on your student loans. When your student loans are in forbearance, payments will be ceased for an agreed-on period (typically 12 months), but interest will still accrue. When your student loans are deferred, interest will not necessarily accrue, but it can be more difficult to qualify for deferment.

You can apply for either status on federal and private student loans. Contact your lender for more details and eligibility requirements.

Step 4: Consider Refinancing Your Debt

If you have a large number of student loans or loans across multiple lenders, you might benefit from refinancing when starting your business by receiving a lower interest rate or having a smaller monthly payment.

Federal student loans typically have lower interest rates, and refinancing these loans could take you out of the running for many federal forgiveness or repayment programs. Many borrowers look into refinancing their private student loans, particularly if refinancing allows them to consolidate payments and lower interest rates.

If you’re worried about how refinancing your student loans might impact your credit score, you will be pleased to know that loan refinancing can be good for your long-term credit. It’s important to note that the credit check can cause your score to drop a few points initially, so if you need a higher score to secure business loans or office space, you might want to wait until these financing options are completed before refinancing.

Step 5: Consider Funding Options

Most new businesses need funding assistance, whether that money comes from investors or small business loans. If you’re nervous about using your savings or remaining capital to finance your business, you might want to look into alternative funding options. 

You can start understanding your funding options by connecting to local assistance programs through the U.S. Small Business Administration (SBA). Reaching out to local entrepreneurs or advisers in your area can also help you learn more about what to expect when launching your business and expose you to any other resources that might be available in your area.

Next, you can see if you qualify for a grant through the SBA. While funding is selective, it’s worthwhile to look into – especially if it can prevent you from taking out another loan.

Lastly, you can look into small business loans to help finance startup costs. In most cases, you can secure loans through private lenders or your current financial institution, bank, or credit union. Be sure to shop around to compare loan terms and interest rates before deciding on the right fit. The SBA offers resources designed to connect you with lenders in your area.

Another Option to Consider When Starting a Business

Even if you have a business idea that you’re confident will work, it can be scary to start a venture with little capital. If you want to minimize your risk and ensure you can make student loan payments during this transition, consider starting your business while you still work full or part time to maintain your finances.

While this option will require more of a time investment, it can offer a financial safety net while your business gets off the ground.

The worst thing you can do is default on your student loan payments – make sure you have a plan in place to defer, reduce, or afford your monthly payments during your business startup period. Can Help You Minimize Your Student Loan Payments When Starting a Business

Planning to make student loan payments when starting a business can be scary. Starting any business is a risk, but the risk can feel even greater when you have student loans weighing on your shoulders.

At, we have many resources available to help you pay down your student loans, even while having a reduced income. Check out our guide on the pros and cons of the Income-Contingent Loan Repayment Plan.

For financial resources to help with your student loans during the coronavirus pandemic, check out our complete coronavirus repayment guide.