I'm interested in starting a business, but I have student debt. What do I need to know?
If you have student debt, it may be harder to access business credit and to save enough cash to cover startup costs. Even if you are able to save enough to start a small business, you still have to keep up with your student loan payments, which divert cash away from your business. Consider the following:
- You may be able to lower your payment on your federal loans. The Small Business Administration’s Startup America initiative advises young entrepreneurs to lower their federal student loan payments by enrolling in Income-Based Repayment (IBR). Most private student loan borrowers do not have this option and may have a harder time making ends meet. If you have private student loans, you might consider refinancing your loans to lower your interest rate, though this option is not available for many borrowers.
- Be sure to make your payments on time. Student debt can hurt your credit score if you have struggled to make your monthly payments. Many lenders include personal credit history in the evaluation criteria for a new small business loan. This requirement may put new graduates with high student debt at a disadvantage – and may be a roadblock if you are an aspiring entrepreneur. But by repaying your student loans on time and in full each month, you can boost your credit profile.
By understanding the impact student debt can have on your credit and taking advantage of alternative payment options on your federal loans, you may be able to get closer to your goal of starting a small business.