Your Ultimate Guide to Starting a Business With Student Loan Debt


If you’re dreaming of starting a business with student loan debt, you’re not alone.

There’s no doubt that student loan debt is a massive issue in the U.S. Collectively, Americans owe over $1.4 trillion in student loan debt spread out among 44 million borrowers—and it’s only growing.[1] Seventy percent of students this year graduated with loan debt, averaging around $35,000—up from $13,327 in 1995.[2]

A debt load can make it very difficult for young people to procure financing to start a business. A recent Stanford graduate carrying a debt of roughly half his education reported receiving 96 loan rejection letters when seeking capital for a small gym franchise he was helping to build.[3]

But that doesn’t mean it’s hopeless.

If you’re dreaming of starting a business with student loan debt, there are several options and approaches to consider. It’s better to have a full knowledge of your options prior to going forward with a business plan or strategy. Read on for essential tips, or jump to our infographic below on how to start a business with student loan debt. 

3 Keys to  Starting a Business With Student Loan Debt

Generally speaking, if you’re an aspiring entrepreneur, starting a business with student loan debt is an unfavorable position. However, there are three areas to consider and explore:

  1. Options for managing your debt
  2. How you acquire funding
  3. Some general best business practices to make this whole process go a lot more smoothly

We’ve laid all three out below so that you can stop worrying and start planning your business’s future.

1. Managing Debt

Taking steps to get your student loan debt under control should be your first step if you want to make life easier as a small business owner—your debt could even be what’s preventing you from getting started in the first place. Fortunately, there are many options available to help relieve such a burden when starting a business with student loan debt. 

Consolidate Loans

For most people, when you first receive loans, they come from a few or many different sources with different terms and interest rates. But you can cut out all those variables by consolidating your loans.

This is super easy to do through your bank or another loan provider—consolidating will most likely give you a better rate simply because it makes the amount of a single loan higher. At the very least, it will make it easier for you to track and manage your debt by having it all in one place.

Just make sure when you refinance to obtain a lower interest rate that you won’t be losing out on any federal loan forgiveness programs, states “If you currently are taking advantage of such programs (for example, by teaching in low-income areas or working in nonprofits or fields such as nursing or law enforcement), consolidating your loans could affect the terms of that forgiveness.”

Income-Based Repayment

If you borrowed federal loans, you might qualify for the forgiveness programs mentioned above, such as Income Based Repayment (IBR) or Pay As You Earn (PAYE), which cap your monthly payments to a percentage of what you earn, not what you owe. This means that if your income suddenly takes a dive or stops altogether, you may have a zero monthly balance. Monthly payments under IBR and PAYE repayment plans are capped at 15% or 10% of your discretionary income.

The downsides?

You have to qualify and file an application with the Department of Education every year. And, of course, this does mean that you’ll accrue more of a burden through interest over time. That certainly isn’t ideal, but as long as you can manage to pay it off monthly, this could be a good option if necessary.

The good news is, currently, any balance remaining after 20 to 25 years of consistent payment will be totally forgiven after that point. Just make sure that if you go this route and qualify, refinancing the loans later on might be a tough choice to make. But it’s a great option if you need to cut monthly costs and are experiencing low income.

Non-Traditional Refinancing

Starting a business with student loan debt isn’t easy. But there are a number of startup loan providers are popping up all over the internet and your subway ads. These companies include SoFi, CommonBond, LendKey, and Earnest. “But to qualify for most loan refinancing, your credit score has to be good—in the high 600s at least,” says “Also, you likely won’t be eligible if your record includes any bankruptcies or defaulted student debts.”

These startups tout much lower interest rates by consolidating your debt through their services. But how do they do it? Make sure that by refinancing through a nontraditional source (e.g., not a bank) that you aren’t paying high fees or putting yourself at future risk unnecessarily. That’s not to say these companies are sharks—they’re just less established. Essentially, these companies are investing in curbing millennial debt in the hopes that millennials, in the future, will use their services for more lucrative financing programs like mortgages and small business loans.[4]

SoFi also provides an interesting Entrepreneurship Program that anyone can apply for. It’s designed specifically for people with debt who want to start small businesses. The program includes financial advising, mentoring, and networking.


You do, of course, have the option to defer payments altogether. In other words, you can temporarily opt out of required monthly payments until you’re ready to cough up again. It can be as easy as clicking a button on your loan provider’s website. But you should consider deferment a last resort. “Short-term debt relief is not without long-term pitfalls,” says Entrepreneur magazine. “Simply stretching the term of a $35,000 federal loan from 10 to 25 years triples the interest due over the lifetime of the loan, from $13,000 to $39,000.”

2. Funding

Once you’ve got your debt under control, it will be much easier to go forward with a funding or financing plan. No two businesses are the same, thus no funding option is truly better than another—it’s good to know what’s out there and assess what’s right for your business.

Small Business and Startup Loans

Another option to consider when starting a business with student loan debt? A small business loan. There are plenty of lenders geared specifically toward brand-new businesses. The main factor they consider? Often, it’s your credit score.

Angel Investors

Angel investors have such a positive nomenclature because for a moderate stake in whatever you’re building, they often change people’s lives or provide a future for a business before anyone else was willing to take a chance. They may also seem other-worldly.

But they’re not as out of reach as you might think.

Sites like AngelList provide an easy way to connect with investors looking for the next big thing. You can also find them through your local chamber of commerce. If you’ve got a promising, thoughtful business plan, don’t overlook the opportunity to work with an angel investor—just make sure you’re willing to give up some of your equity.


You’ve probably heard of sites like Kickstarter and GoFundMe, which provide an infinite (and indeterminate) outsource for securing funding for your business or product goal. This can be a great way to gain traction before incurring overhead costs and can be a gateway to securing professional financing down the line. Crowdfunding is definitely a tactic you should consider if you’re starting a business with student loan debt

The downside is that the results are in no way guaranteed: You could pour your heart into marketing your crowdfunding campaign, but it won’t ensure that the dollars will pour in. You will have to rely on the finicky wallets of the public.

Student Loan Payments

If you’re still in school and feeling really scrappy, it’s possible to use money provided through your student loans to start your business in college. This means that while you’re still receiving loans, you can opt to receive more than you need or the maximum amount your lender provides you.

Charisse Conanon on can vouch for this method: “My student loans had a 6.8% interest rate—more than three times lower than the credit card rate. While my classmates used their student loan checks to pay rent for posh apartments, I lived meagerly and allocated some funds for my business. Additionally, borrowing from my student loans didn’t create an immediate bill for me.”

Just be wary—not all providers let you use your student loan money outside of school and cost-of-living needs. This certainly doesn’t sound like the easiest or most accessible route, but it can be an option.

3. Good Advice

Unfortunately, there’s no easy answer for starting a business with student loan debt. Nothing will magically erase your student loan burden or help you secure financing as an at-risk debtor. The good news is there are some tried-and-true best practices to make your dreams come true as an aspiring entrepreneur.

Live Lean

Even if you qualify for refinancing, consolidation, or deferral—and especially if you don’t have any outside support—it’s going to be very difficult to start a business while repaying your student loans,” says, “but it can be done.”

This may go without saying, but in case it’s not obvious, it’s helpful to live beneath your means. Budget your life appropriately. Rent a small apartment. Find ways to keep your cost of living way, way down. This will only help you be a better business owner in the long run as you learn the annals of managing finances.

Never Miss a Payment

Make paying off your debt a major priority. Making all your student loan payments on time will build you a sterling credit score, which lenders will use when considering whether you’re eligible for a small business loan.

Work With a Mentor or Financial Pro

If you’re starting a business with student loan debt, it’s important to get help where you can. 

You can find mentors and professionals through your local chamber of commerce or through the Small Business Administration’s small business counseling program. As a small business owner with a debt burden, anything to get a leg up is a good thing.

Hopefully this information has eased your concerns about starting a business with student loan debt. The point is: Don’t let it hold you back. Aspiring entrepreneurs are the future of business, and people want to help make that happen. Go forth!


Infographic Sources: Bureau of Labor Statistics | | Forbes | Forbes | Gallup | U.S. Small Business Administration | Student Loan Hero

Article Sources:

  1. “Student Loan Debt Statistics
  2. “Student loan debt grows, but there are ways to ease burden
  3. “Helping Millennial Entrepreneurs Conquer Student-Loan Debt
  4. “Helping Millennial Entrepreneurs Conquer Student-Loan Debt

Meredith Wood

Meredith Wood is a small business owner, the editor-at-large at JustBusiness, and VP at Fundera.

Meredith is the founding editor of Fundera and has specialized in financial advice for small business owners for close to a decade. Meredith is frequently sought out for her expertise in small business lending. She is a monthly columnist for AllBusiness, and has contributed to or been featured in the SBA, SCORE, Yahoo!, Amex OPEN Forum, Fox Business, Fortune, American Banker, Small Business Trends, MyCorporation, Small Biz Daily, StartupNation, Manhattan Chamber of Commerce and more.

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