You’re ready to start your own business, but still have student loans to pay off? We’ll help you break down your options.
Income Driven Repayment Plans
If you know you won’t be taking a salary for a while and have federal loans, you may want to look into switching into an income-driven repayment plan. Your monthly payment amount will be based on your annual income, and can be as low as $0 per month if you make less than $17,820 per year. Be aware that income-driven plans are typically only a short-term fix – your interest amount will continue to grow while you’re on these plans. Once you start earning a salary, you can switch to another plan or see if you qualify for refinancing.
Refinancing Can Be An Option
If you’re able to raise money from investors, hopefully your salary will be enough to make your monthly payments. If you can continue to make your monthly payment amount, you should look into refinancing before you start the company. Once your salary dips, it will be more difficult to find a lower interest rate. Some refinance lenders even offer programs to help while you start your business. For example, the SoFi Entrepreneur Program allows for six months of deferment.
Explore Your Financial Options
Be cautious of your overall financial situation when starting a company. Make sure you’re aware of your student loan repayment options and the different ways to fund your business. Being saddled with student debt can affect your ability to borrow the capital needed to get your new business off the ground. However, having a student loan doesn’t have to be the end of your entrepreneurial dream.
Here are some things you can do to help both relieve your loan burden as well as fund your start up.
1. Crowdfunding: Websites like Kickstarter and Indiegogo allow you to raise money from the masses. There are many platforms in which to inspire people to back your project – and many do not require you to give away any equity.
2. Angel investors or Venture capitalists: These are typically wealthy individuals or institutions who are looking for new innovative startups to invest in. This can mean giving up a significant amount of equity, but can be worth it to get the money you need to grow your business. Be careful when choosing which investors you want to go into business with. Their knowledge and connections can be great to help grow your business.
3. Refinance your student loan: Refinancing before you start your business (assuming you’ll have enough to cover your ongoing monthly payments) allows you to get another loan to pay for your current loan(s) at a lower interest rate. You’ll need a decent income level and credit score to qualify, but this can lower your monthly payments and allow you more breathing room while you run your business.
Make Sure You’re Ready
Remember, many who venture into the startup world don’t see a paycheck for at least the first year. Furthermore, for most it can take several years to start producing a profit. You do have options for your student loans if you plan correctly, so don’t let those loans hold you back from pursuing your entrepreneurial dreams!