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How to Start a Business With Student Loans and Not Go Broke Launching a business when you have thousands of dollars in debt is a tricky move. Here's what you should know before you take the leap.

By Monica Mehta Edited by Dan Bova Aug 7, 2013

Opinions expressed by Entrepreneur contributors are their own.

Finance expert Monica Mehta offers advice to entrepreneurs tackling real-world personal finance issues. Ask her a question and your query might be the inspiration for a future column.

Q: I want to quit my job to pursue a startup, but have $35,000 of student loan debt. Is there a way to shrink my loan payments while we are trying to get off the ground? -- Eric Lee, Austin, Texas

Today student loans represent the single largest debt burden for people under 40. In fact, from 2004 to 2009, only 37 percent of federal borrowers managed to make timely payments without postponing or becoming delinquent. Those most likely to default are unemployed or underemployed. Startup life, where income is anything but certain, qualifies you for the high risk camp, so it's important to know your options.

There are a handful of alternatives to help you reduce your debt burden in the short term. The first step is to identify whether your student loans are federal, private or a combination of the two.

Federal loans can be consolidated to reduce monthly payments. While you won't be able to lower your rate, extending your term from 10 to 25 years will reduce the amount you owe each month by 40 percent, from $402 to $267 per month. Selecting a graduated pay option can further minimize upfront payments. Borrowers start with a reduced monthly payment, which gradually increases after year two and four, settling into a higher standard monthly payment in year six for the duration of the loan.

Federal borrowers facing periods of low or no income can also file for 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, according to Gary Carpenter, CPA and Executive Director of National College Advocacy Group, which supplies information regarding student loans. This means that if your income suddenly drops or stops altogether, you may have a zero monthly balance.

Monthly payments under IBR and PAYE repayment plans are capped at 15 or 10 percent of your discretionary income, based on federal guidelines. Borrowers must qualify and file an application annually with the Department of Education. And under new law, any balance remaining after 20 to 25 years of consistent payment will be forgiven.

As of 2012, only 700,000 borrowers were enrolled in IBR. The Obama Administration estimates that IBR could reduce payments for 1.6 million borrowers.

Options to defer private student loans are more limited. Few private lenders consolidate loans, and even those that do won't reduce your rate or extend repayment terms. Most will offer need-based forbearance, or a 12-month break from making payments. Some offer up to three 12-month grace periods to defer payments.

It's important to note that short-term debt relief is not without long-term pitfalls. Reducing your monthly payments does not make the debt go away. 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. And when the amount you pay each month doesn't cover interest, negative amortization can cause your loan balance to grow exponentially.

Taking the easy road today may set you up for a tough climb later. "Young people often focus on today's cash flow, ignoring they have the work of their life ahead of them," says Eleanor Blayney consumer advocate for the CFP Board, a non-profit that qualifies investment professional to become certified financial planners. "Electing for a long repayment cycle can set you up for debt drag that eclipses other important milestones in life such as buying a home, preparing for retirement and saving for marriage and children."

As an alternative to dragging out your loans, consider crafting a pre-emptive savings strategy to help you stay current while income is influx. In Eric's case, that means you'd aim to save two years worth of payments or $10,000 for an outstanding balance of $35,000. To build your nest egg, consider working in your present job a little longer or take on a consulting gig to throw off extra income.

Budget six to eight months to earn more and make lifestyle sacrifices such as taking on a roommate, cutting down meals out and extraneous expenses to help you save. An easy to use monthly payment calculator can help you determine your budget.

Despite the inability to shake student loan debt, more than 14 percent of borrowers have loans that are overdue. "If down the road you get into trouble, don't ignore your student loans. They can't be discharged in bankruptcy. They will be around no matter what," says Carpenter. "Contact your lender to create an alternative payment plan They don't want to see your loan go into collection either."

The bottom line is that getting a pass today means you're electing to double-down on your future success. Adding $26,000 to your interest burden won't seem like a lot if your business is successful but there's no escaping the fact that you are digging the hole deeper and reducing your financial flexibility. The preferred solution would be to find a way to save as much money as you can during the startup phase and leave the structure of your debt unchanged. Think about how you can really rein in personal expenses in the near term. You'll be better positioned to pursue the startup route and will maintain some of your financial freedom.

Author and Investor at Seventh Capital

Monica Mehta has spent the past 15 years investing in and advising hundreds of entrepreneurs. She is an investor at New York-based Seventh Capital and author of The Entrepreneurial Instinct (McGraw-Hill, Sept 2012). Read more at monicamehta.com .

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

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How to Start a Business While Paying Off Student Loans

For many entrepreneurs, starting a business means more purpose, flexibility, freedom and control at work. But when student loans take up a big portion of your budget, that dream may be harder to achieve. The median monthly student loan bill among those in repayment is $222, according to data retrieved by Student Loan Hero. That doesn’t leave much room for financial risk-taking for those fresh out of college. In fact, the share of entrepreneurs between 20 and 34 years old decreased from 34% in 1996 to 24% in 2016, according to the Ewing Marion Kauffman Foundation’s most recent Startup Activity  report . With ingenuity and forethought, though, there’s no reason why young entrepreneurs should hold off trying to start a business while paying off student loans.

Start with an idea that is low-risk

If you’re currently working full time, consider starting a business on the side so you can keep any benefits you currently receive, like health care and access to an employer match on retirement savings. That will also help you evaluate the viability of your business idea without going all in. Make sure you secure any insurance, permits, licenses or certifications you might need for the business. Just because it’s a side hustle, doesn’t mean you can avoid red tape aimed at keeping clients, and yourself, safe. As a self-employed individual, you’ll also likely have to pay quarterly  estimated taxes  on side income, if federal and state income taxes aren’t automatically withheld from it. Alternatively, you can ask your primary employer if you’re still working full- or part-time for a separate company to take more tax out of your paycheck to avoid paying additional estimated tax.

Adjust your student loan payment

Reducing your bills, like those for student loans, can provide more freedom to fund and launch your business. Some options to consider are: Consolidation and refinancing:  If you have good credit — typically defined as a credit score of 670 or higher — or access to a creditworthy cosigner, you may be able to refinance student  loans to a lower interest  rate . This process is also referred to as private student loan consolidation. It’s an especially worthwhile option for high-interest private student loans. When you refinance federal loans, you’ll lose the ability to sign up for forgiveness programs and alternative payment plans. But private loans come with fewer payment-reduction options, so you have less to lose — and more to gain in interest savings, as their rates are often higher than federal loans’ rates. When you refinance, you may have the choice to stretch your repayment term over a longer period, which could lower your monthly payments. But when you make payments for a longer time, you’ll pay more in interest, which can cut into the overall savings refinancing provides. Forbearance and deferment:  It’s possible to postpone your student loan payments altogether through deferment or forbearance (depending on your circumstances) while you start your business. You can apply for deferment if you’re unemployed or are experiencing economic hardship. If you have federal subsidized or Perkins loans, interest will not accrue during the deferment period. You can request forbearance for a wider variety of financial reasons for up to 12 months at a time, and extend it if you need it. But unlike deferment, interest will accrue on all types of federal loans during forbearance. That means you may owe more once the forbearance period has ended. Contact your student loan servicer to discuss which option is best for you, and how much it would cost over time. Income-driven repayment plans:  If you have federal loans, consider signing up for an income-driven repayment plan. Your payments will be 10-20% of your discretionary income, depending on the plan, which can lower your bill significantly if you’re working less for an employer while starting a business. Your payments may not cover all the interest that accrues, which could mean a growing balance. Income-driven plans do provide forgiveness after 20 or 25 years, however, any forgiven amount may be taxed as income. The government’s repayment  estimator  tool can provide line of sight into how much you’ll pay overall — and potentially get forgiven — if you switch to one of these plans.

Work with a mentor

You don’t have to start a business all on your own. In fact, seeking the help of a mentor early can give you ideas for how to develop a business plan and get funding while keeping your own finances in shape. Use the U.S. Small Business Administration’s  local assistance tool  to find a small business development center or other free support in your area. You can also  request a mentor  through SCORE, a national nonprofit that pairs entrepreneurs with volunteer business experts. Finally, tap into your college’s alumni network to see if other entrepreneurs are interested in sharing their expertise. Ask the alumni services department if anyone comes to mind as a potential mentor for you, including professors and industry experts at the school. Or, search LinkedIn for entrepreneurs from your alma mater who may be willing to guide you.

Explore funding sources

Startup funding might feel like the biggest barrier to entrepreneurship when you have student loans. Banks and community organizations, for instance, offer loans backed by the U.S. Small Business Administration. But without a history of profitability as an established business, it can be hard to qualify. You may also not have a long personal credit history as a relatively recent graduate, which can be another barrier to getting traditional small business financing. Self-funding a business is an option, but with limited resources as a result of student loans, you may be tempted to rely on credit cards. This can be a viable method for some businesses, but your first priority should be to make all your student loan payments on time. Missed payments will negatively impact your credit score, affecting your ability to get business financing and even a mortgage or personal credit card in the future. If you use credit cards to start a business, make a plan to pay off the charges in a reasonable amount of time to avoid ballooning interest.

Consider these other methods of financing, too, which may be more accessible — even with existing debt to pay off. Crowdfunding:  Loans from friends and family give you the ability to set the terms, including how long you’ll have to pay them back and whether the loans will accrue interest. Have a candid conversation about your ability to repay others investing in your business, and keep the lines of communication open if you find it’s harder than expected to keep to the terms you agreed to. Crowdfunding, however, gives you the opportunity to raise money from a larger pool of investors than just friends and family — without having to repay the funds. Platforms including Kickstarter, Indiegogo and GoFundMe let you list a product or business others can contribute to, and you can offer rewards to investors in exchange for contributing. Check each site’s pricing page for details on how much they charge. You might see platform fees to list a campaign, transaction fees when a backer contributes to the campaign and transfer fees when funds move to your personal bank account. Lending circles:  Lending circles provide interest-free loans to low-income individuals and small businesses while helping borrowers improve their credit at the same time. In a lending circle, a group of community members pays into a central pot, and members take turns receiving a loan. Monthly payments into the fund are reported to the credit bureaus, helping participants build a credit profile. You’ll need to apply and take a financial education course in order to participate. But you can use the loan you receive to help with startup costs, and to build credit so you can apply for traditional funding in the future. Search for a lending circle through local community organizations using the nonprofit Mission Asset Fund’s  lookup tool . Online lenders:  You can search for funding from online-only lenders like OnDeck Capital or Kabbage to pay for a range of business expenses, including equipment and marketing. Online lenders generally offer faster application processes than traditional small business loans, and they may be easier to qualify for. The trade-off, however, lies in online loans’ interest rates. Without good personal credit, you could see interest rates much higher than typical rates for credit cards, for example. Taking on debt for your new venture on top of student loans can be risky, so compare online lenders carefully and borrow only as much as you know you’ll be able to repay. Paying off student loans can make financing a business difficult to start. But seeking advice from a mentor and making thoughtful decisions about how to launch it will move you closer to your vision of entrepreneurship.

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Student Loan Repayment Options: Find the Best Plan For You

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Table of Contents

If you want to pay less interest

If you want lower monthly payments and student loan forgiveness, if income-driven repayment doesn't make sense with your salary, if you don't want payments tied to your income, if you want to pay off your loans more quickly, if you need to temporarily pause payments, if you qualify for public service loan forgiveness, have private student loans.

Borrowers can choose from four types of federal student loan repayment plans. But the best one for you will likely be the standard repayment plan or an income-driven repayment plan, depending on your goals.

Standard repayment lasts 10 years and is the best one to stick with to pay less in interest over time.

Income-driven repayment (IDR) options tie the amount you pay to a portion of your income and extend the length of time you're in repayment to 20 or 25 years. When the term is over, you can get income-driven loan forgiveness for your remaining debt. IDR is best if you're having difficulty meeting your monthly payment and need something more manageable. There are four types of IDR plans.

Graduated repayment lowers your monthly payments and then increases the amount you pay every two years for a total of 10 years.

Extended repayment starts payment amounts low and then increases every two years for a total of 25 years. Or you can choose a fixed version which splits payment amounts evenly over 25 years.

Before changing student loan repayment plans , plug your information into the Education Department's Loan Simulator to see what you’ll owe on each plan. Any option that decreases your monthly payments will likely result in you paying more interest overall.

Here's how to decide which payment plan is right for you:

Best repayment option: standard repayment.

On the standard student loan repayment plan, you make equal monthly payments for 10 years. If you can afford the standard plan, you’ll pay less in interest and pay off your loans faster than you would on other federal repayment plans.

How to enroll in this plan: You’re automatically placed in the standard plan when you enter repayment.

Best repayment option: income-driven repayment.

The government offers four IDR plans: income-based repayment , income-contingent repayment , Pay As You Earn (PAYE) and Saving on a Valuable Education (SAVE). These options are best if your income is too low to afford the standard repayment.

Income-driven plans set monthly payments between 10% and 20% of your discretionary income . Payments can be as small as $0 if you're unemployed or underemployed and can change annually. Income-driven plans extend your loan term to 20 or 25 years, depending on the type of debt you have. At the end of that term, you get IDR student loan forgiveness on your remaining debt — but you may pay taxes on the forgiven amount.

The Education Department has announced another new IDR plan option that would cut payments by at least half and forgive some borrowers' debt after 10 years, instead of 20 or 25. It's not yet finalized or available to borrowers; rollout will begin at the end of 2023.

How to enroll in these plans: You can apply for income-driven repayment with your federal student loan servicer or at studentaid.gov . When you apply, you can choose which plan you want or opt for the lowest payment. Taking the lowest payment is best in most cases, though you may want to examine your options if your tax filing status is married filing jointly.

» MORE: Which income-driven repayment plan is right for you?

Best repayment option: graduated student loan repayment plan.

If your income is high, but you want lower payments, a graduated plan may make sense for you.

Graduated repayment decreases your payments at first — potentially to as little as the interest accruing on your loan — then increases them every two years to finish repayment in 10 years.

If your income is high compared with your debt, you may initially pay less under graduated repayment than an income-driven plan. This could free up money in the short term for a different goal, like a down payment on a home, without costing you as much interest as an income-driven plan. You would still pay more interest than under standard repayment.

Initial payments on the graduated plan can eventually triple in size. You need to be confident you’ll be able to make the larger payments if you choose this plan. Generally speaking, it’s best to stick with the standard plan if you can afford it.

How to enroll in these plans: Your federal student loan servicer can change your repayment plan to graduated repayment.

Best repayment option: extended student loan repayment plan.

The extended plan lowers payments by stretching your repayment period to as long as 25 years. You must owe more than $30,000 in federal student loans to qualify for extended repayment.

You can choose to pay the same amount each month over that new loan term — like under the standard repayment plan — or you can opt for graduated payments. Whether you choose equal or graduated extended payments, you’ll have a good idea of what you’ll pay each month in the future.

Extended repayment does not offer loan forgiveness like income-driven repayment plans do; you will pay off the loan completely by the end of the repayment term.

How to enroll in these plans: Your federal student loan servicer can change your repayment plan to extended repayment.

To get rid of your debt sooner than your monthly payments allow, you can prepay loans. This will save you interest with any repayment plan, but the impact will be greatest under standard repayment. Just be sure to tell your student loan servicer to apply the extra payment to your principal balance instead of toward your next monthly payment.

» MORE: How to pay off student loans fast

You may be able to temporarily postpone repayment altogether with deferment or forbearance . Some loans accrue interest during deferment, and all accrue interest during normal forbearance periods. This increases the amount you owe.

If your financial struggles are pay-related, income-driven repayment is a better option. Income-driven repayment plans can reduce payments to $0 — and those payments count toward forgiveness.

Public Service Loan Forgiveness is a federal program available to government, public school teachers and certain nonprofit employees. If you’re eligible, your remaining loan balance could be forgiven tax-free after you make 120 qualifying loan payments.

Only payments made under the standard repayment plan or an income-driven repayment plan qualify for PSLF. To benefit, you need to make most of the 120 payments on an income-driven plan. On the standard plan, you would pay off the loan before it’s eligible for forgiveness.

How to enroll in these plans: You can apply for income-driven repayment with your servicer or at studentaid.gov .

Private student loans don’t qualify for income-driven repayment, though some lenders offer student loan repayment options that temporarily reduce payments. If you’re struggling to repay private student loans , call your lender and ask about your options.

If you have a credit score in at least the high-600s — or a cosigner who does — there’s little downside to refinancing private student loans at a lower interest rate. Dozens of lenders offer student loan refinancing; compare your options before you apply to get the lowest possible rate.

How much could refinancing save you?

Note: This calculator assumes that after you refinance, you’ll make minimum monthly payments.

Step 4 : Compare NerdWallet's top-rated student loan refi lenders .

Private lenders also refinance federal student loans , which can save you money if you qualify for a lower interest rate. But refinancing federal student loans is risky because you lose access to benefits like income-driven repayment plans and loan forgiveness. Refinance federal loans only if you’re comfortable giving up those options.

On a similar note...

Choosing A Student Loan

Via Ascent's Website

How Do Student Loans Work?

Updated: Apr 17, 2024

Student loans are a type of installment loan  that pay for college and its related costs, including tuition, fees, books and living expenses. There are two types—federal and private—and the type of loan you receive dictates how your interest rate is calculated, your repayment options and the consumer protections available.

Like other types of loans, student loans are borrowed funds that you’ll eventually repay, along with any interest and fees associated with them. Below, explore how student loans work so that you can borrow and pay them off with confidence.

Types of Student Loans

How does student loan interest work, how to apply for student loans, what can student loans be used for, how much do student loans cost, student loan repayment options, frequently asked questions (faqs).

The government provides federal student loans, while private student loans are available through private entities, like banks, credit unions and online lenders.

Federal Student Loans

These loans are available through the U.S. Department of Education. You must submit a Free Application for Federal Student Aid, known as the FAFSA , to access them. Most federal student loans, with the exception of PLUS loans , do not require a credit check. Their interest rates also aren’t credit-based; they’re set by federal law, and are typically lower than private loan rates.

Depending on your financial need, you may have several federal loan options:

• Direct subsidized loans. Available to undergraduate students based on financial need . The amount you qualify for  depends on your year in school and whether you’re considered financially independent from your parents. These loans are subsidized by the government, meaning interest doesn’t accrue while you’re in school or during periods of deferment . But it does begin accruing when you graduate or drop below half-time status.
• Direct unsubsidized loans.  Available to undergraduate, graduate and professional students regardless of financial need. Since these loans are unsubsidized, interest accrues during all periods.
• Direct PLUS loans. Available to graduate and professional students and parents of dependent undergraduate students to cover costs that other financial aid doesn’t. For instance, if you receive some subsidized or unsubsidized loans but need more money to fill in a funding gap, you could opt for a direct PLUS loan. If you want to get a PLUS loan, a credit check is required.
• Direct consolidation loans. This option lets you combine multiple federal student loans into one loan with a single loan servicer and interest rate. This can extend your repayment term, lowering your monthly bill, but could mean paying more in interest over time.
• Private Student Loans

These loans are available through banks, credit unions and online lenders. While federal student loans have fixed interest rates, and most come with maximum loan amounts , the same isn’t true for private student loans .

Lenders typically use their own standards to set borrower requirements, but in general, a good or excellent credit score—generally 670 or higher—will get you the most competitive rates and terms. That makes it difficult for undergraduates to borrow private student loans independently, since they have shorter credit histories. Undergraduates generally must use a co-signer to qualify for private loans. In some cases, though, it’s possible to get a student loan without a co-signer .

Most importantly, private student loans do not come with borrower protections that federal student loan borrowers enjoy. Private loan borrowers won’t get access to income-driven repayment plans , forgiveness if you work in certain public service fields or generous payment-postponement programs if you experience financial hardship. That means it’s generally best to max out federal loans before turning to private loans.

Related: Find The Best Student Loan Options

Interest is a fee that the lender charges you to borrow money, usually expressed as a percentage of the amount you borrow. Student loans can have fixed interest rates—which remain the same over the life of the loan—or variable interest rates, which fluctuate over time based on certain economic conditions.

For most types of student loans, interest begins accruing as soon as you receive the money. That means the loan you took out freshman year will accrue interest during your time in school—and if you don’t make payments until you graduate, your balance will be larger than what you originally borrowed. The exception to this rule is federal subsidized loans ; if you qualify for these, the government will pay the interest while you’re in school or when your loans are deferred.

When you make a student loan payment, your money is first applied to any interest that has accrued since your last payment. Any remaining amount is then applied to your loan’s balance. When you first start repaying your loans, a large portion of your payments will be eaten up by interest charges. But as your loan slowly shrinks and your repayment progresses, more and more of your money will be applied directly to your loan balance.

Interest on student loans is typically charged daily. The interest you accrue will also become capitalized at certain times. When interest is capitalized , any accrued interest is added to your loan balance—so you begin accruing interest on your existing interest. When interest becomes capitalized depends on your exact loan, but it often occurs when you enter into repayment or a temporary forbearance ends.

If you’re applying for federal student loans , your starting point is the FAFSA.

Before you can start the FAFSA, you’ll need a Federal Student Aid ID (FSA ID). Both parents and students will need an FSA ID if the student is a dependent. It serves as your electronic signature as you complete the various federal student aid documents.

If you’re a parent completing the FAFSA for your child, or with them, you can head to FAFSA.gov to start your application. You’ll enter personal information for both the student and parent, including names, Social Security numbers and dates of birth. You’ll also fill out demographics and financial information before signing and submitting the form.

Once you’ve been accepted to colleges, you’ll get an award letter from the school. Your award letter will detail how much student aid you get, which can include grants, federal work-study funds and federal student loans. You’ll have the opportunity to respond to your award letter and accept or reject the student loans you’ve been offered.

If you still need money after you’ve maxed out federal student aid, you can apply for private student loans . To apply, you’ll need to visit each lender individually. Some lenders let you see if you prequalify for a loan first, based on your credit score and history. Others only allow you to see if you qualify after you’ve applied.

Private student loan applications vary by lender, but typically require financial and school information plus the amount of money you need, when you plan to graduate and whether you’ll apply with a co-signer.

Your school determines its total cost of attendance , which includes all the expenses a student must pay to obtain a degree, including tuition, fees, living expenses and transportation. If you plan to use student loans to cover these costs, your loan funds can be used for purposes like:

• Tuition and fees
• Supplies and other equipment
• Meal plans and groceries
• Room and board (including an apartment and utilities)
• Technology expenses, like a computer
• Transportation costs, like gas or public transit passes

Most private student loans mirror federal student loan allowances, but you might find that some lenders have limitations in place on what you can and can’t use loans for.

Congress sets federal student loan interest rates, which are different depending on the type of student loan you borrow. For instance, if you have a direct unsubsidized loan and a direct PLUS loan, you’ll pay different interest rates for both.

Here are the interest rates on loans for the 2022-2023 school year:

• 4.99% for direct subsidized and unsubsidized loans for undergraduates
• 6.54% for direct unsubsidized loans for graduate and professional students
• 7.54% for direct PLUS loans for graduate or professional students, and parents of dependent students

Your federal student loans consist of the principal, or the amount you borrowed, plus interest.

Once you’ve taken out your federal loan, the interest rate will not change. If you eventually combine your federal loans using a direct consolidation loan, the interest rate will be the average of your original loans’ rates rounded up. The only other time your interest rate changes is if you refinance your student loans .

Private student lenders determine your interest rate based on your creditworthiness, or that of your co-signer, if you have one. Some private student loans also charge fees, like origination or late fees. While federal student loans have fixed interest rates that don’t change over the life of the loan, private student loans often let you choose between fixed or variable interest rates.

Keep in mind that the lowest interest rates on private loans are available to borrowers with the strongest credit scores. The lower your credit score, the higher your interest rate will generally be.

Compare Student Loan Rates In Minutes

Compare rates from participating lenders via Credible.com

Federal student loans have some of the friendliest repayment terms . Federal loans also offer a six-month grace period, which means you’re not obligated to start paying your loan back until six months after graduation.

The standard repayment plan for federal student loans assumes you’ll pay off your loans within 10 years of graduation. But you can also choose to enroll in an alternative repayment plan. Some of these, called income-driven repayment (IDR) plans, tie your monthly bill to your discretionary income. There are four types:

• Income-based repayment (IBR) . Your monthly payments will be 10% to 15% of your discretionary income. If you haven’t paid your loan off in 20 or 25 years, your remaining balance will be forgiven. Whether you qualify to pay 10% or 15% of your income, and win forgiveness after 20 years or 25, depends on the year you first borrowed. Those who first took out federal loans after July 1, 2014 qualify for the more generous terms: payments at 10% of income and forgiveness after 20 years.
• Income-contingent repayment (ICR) . Your monthly payments will be 20% of your discretionary income or the amount you’d pay on a fixed payment plan over 12 years. Any outstanding balance is forgiven after 25 years.
• Pay As You Earn (PAYE) . This plan caps your monthly payments at 10% of discretionary income and will never be more than what you’d pay under the standard repayment plan. Your remaining balance will be forgiven after 20 years.
• Revised Pay As You Earn (REPAYE) . Your monthly payment will be 10% of your discretionary income, but it’s not guaranteed that you’ll pay less compared to a standard repayment plan. Any balance remaining after 20 or 25 years will be forgiven. REPAYE doesn’t have an income requirement like other IDR plans do, meaning any borrower with federal loans can sign up, regardless of income.

Federal student loans also have deferment and forbearance options, which allow you to temporarily pause payments without hurting your credit score or defaulting on your loan.

Most private student loans have repayment schedules of five to 20 years or more, and many offer grace periods. But keep in mind that interest typically accrues while you’re in school and during periods when you postpone payments. Private lenders also aren’t required to offer the same amount of forbearance in case you can’t make payments, with limits typically at 12 or 24 months throughout the duration of the loan term. Federal loans offer up to three years of forbearance or deferment, depending on the circumstance.

What happens to student loan debt when you die?

If you are the primary borrower, your federal student  loans can be forgiven if you die . Parent PLUS loans can be forgiven if either the parent borrower or the student who benefitted from the loan dies.

It’s less clear what happens to your private student loans if you die, since policies vary by lender. Many lenders will discharge the debt if the primary borrower dies, but you should check your lender’s exact policy to confirm.

How long does it take to pay off student loans on average?

How long it takes to pay off your student loans  depends on the type of loan you have and your repayment plan. The standard repayment schedule for federal student loans has you pay off your debt in 10 years, but alternative plans allow for 20, 25 or 30 years of repayment.

Private student loan terms vary by lender, but you can often choose between five, seven, 10, 15 and 20 year repayment periods. Shorter repayment terms typically come with lower interest rates, and the faster you repay your debt, the less you’ll pay overall.

What happens if you don’t pay your student loans?

If you  don’t pay your federal student loans , your loan will become delinquent on the first day of your missed payment. You may be charged late fees, and after 90 days, your missed payments will be reported to the credit bureaus. If your loan remains delinquent for 270 days (about 9 months), you’ll enter default.

If you default on your federal loans, your credit will be seriously damaged and the entire loan balance can become due. Lenders may also garnish your wages, tax refunds or Social Security payments to recoup their money. You might be sued by the lender or be forced to deal with aggressive collection agencies.

Private student loans follow a similar path, but the timeline is shorter. Your loan will become delinquent on the first day of your missed payment and can enter default after just 90 days. After 120 days, the lender may charge off your debt—that is, sell it to a collections agency who will work to make you pay up. Your credit will be seriously damaged, fees will accrue and you could be sued to allow the lender to garnish your wages.

Forbes Advisor adheres to strict editorial integrity standards. To the best of our knowledge, all content is accurate as of the date posted, though offers contained herein may no longer be available. The opinions expressed are the author’s alone and have not been provided, approved, or otherwise endorsed by our partners.

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Private Student Loan Rates: August 6, 2024—Loan Rates Stay Put

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Got Student Loans? What Small Business Owners Need to Know

Although the student loan forgiveness plan came to a halt after the Supreme Court shot it down, there is still a path toward student loan forgiveness: the SAVE Repayment Plan . This plan is harder to challenge legally because it’s an adjustment to an already existing repayment plan. It could ease the burden of small business owners across the country who are struggling to pay off their debt and run their businesses. 

You can run — and fund — a small business even if you still have student loan debt. Here’s what you need to know about student loan forgiveness and managing your debt as a small business owner.

Get Personalized Loan Options For Your Business

Let our experts connect you to lenders based on your unique business data.

1. Apply for the SAVE Plan

The SAVE Plan stands for Saving on a Valuable Education and is a change from the previous REPAYE income-based repayment plans on federal student loans. For anyone who qualifies, it can significantly reduce your monthly payments and lower the amount you’ll pay in interest over time. In fact, you may qualify to pay $0 on your student loans — and interest won’t accumulate. 

Plus, if you’re borrowing less than $12,000, your loans will be forgiven after 10 years of regular payments (even if those payments are $0). For larger amounts, your loans can still be forgiven, but you’ll add one year for every additional $1,000 borrowed. You can apply for the SAVE Plan here.

If you’re not sure whether the SAVE Plan is right for you, use the Loan Simulator provided by FederalStudentAid.gov to walk through your repayment options before you apply.

2. Consider Other Repayment Plans for Federal Loans

If you don’t qualify for the SAVE Plan but you’re struggling to make payments each month, consider a different repayment plan. Federal loans are placed automatically on a 10-year standard plan. This plan may save you interest over time, so it’s a good idea to remain on it if you can afford it. But you may not have to stick with it if your payments are too high. 

Here are the other repayment options that you may qualify for:

Graduated repayment plan

• Who it’s for : Any federal student loan borrower.
• How it works : It increases loan payments over time, usually every two years. This plan gives borrowers time to earn a higher income that may match the payment increases.
• Length of repayment period : Must pay off loan in 10 years.

Extended repayment plan

• Who it’s for : Direct loan borrowers with more than $30,000 in loans.
• How it works : Borrowers can have fixed or graduated plans with more time to pay it back.
• Length of repayment period : Must pay off loan in 25 years, so the repayment period is longer than others.

Pay as you earn repayment plan (PAYE)

• Who it’s for : Any new borrower on or after October 1, 2007 that got a direct loan disbursement on or after October 1, 2011. Must prove you can’t afford payments. 
• How it works : You pay 10% of your discretionary income (but never more than the standard plan would charge). Each year, you must resubmit your income, even if nothing has changed.
• Length of repayment period : After 20 years of payments, your remaining undergraduate student loans are forgiven (it’s 25 years for graduate loans). 

Income-based repayment plan (IBR)

• Who it’s for : Borrowers who can prove they have high debt in relation to their income level. 
• How it works : You’ll pay either 10% or 15% of your discretionary income, depending on your loan start date (but never more than you would have paid with the standard plan). You have to resubmit your income each year even if your details stayed the same. Spouse’s income counts if you file joint taxes.
• Length of repayment period : Your remaining balance is forgiven after 20 or 25 years of making payments, depending on the start date of your loans. 

Income-contingent repayment plan (ICR)

• Who it’s for : Any borrower with qualifying loans.
• How it works : You’ll pay the lower amount of either 20% of your discretionary income or the total you would owe on a fixed 12-year payment plan that has been modified for your income level. Your spouse’s income is counted if you file joint taxes.
• Length of repayment period : After you make payments for 25 years, your balance will be forgiven. 

Income-sensitive repayment plan

• Who it’s for : Any borrower with FFEL Program loans.
• How it works : Your monthly payment depends on your annual income.
• Length of repayment period : Your loans will be completely paid off after 15 years.

Before signing up for any repayment plan, make sure you know what you’re required to pay each month. Also, check the interest you’ll be charged over time. The standard plan is typically the option that will charge the least interest long term.

3. Pay Close Attention to Your Loans

You’ll want to be aware of several aspects of your student loans, including due dates, how much you owe, and the interest on each one — especially with the changes coming. Student loan repayments will restart in October 2023. Put the due date on your calendar to make sure you have enough cash on hand.

Also, try to pay off the student loan with the highest interest rate first. You can see the details, including the interest rate, of each loan after logging into your account on your loan servicer’s website. Direct any extra payments toward the loan with the highest rate until it’s paid off.

4. Make On-Time Payments

Missing several payments can affect your personal credit score. A lower credit score may impact your ability to get the business credit cards and small business loans you need to grow your business, so make sure you pay on time. 

This is true even if that payment is $0. You may still need to sign up for automatic payments with a $0 payment — make sure to follow your lender’s instructions.

5. Combine Private Loans

If you have more than one private student loan, consider consolidating them into one, also called refinancing. Doing this may make monthly repayment easier and make you less likely to forget a payment — especially if you’re paying multiple companies or lenders every month. 

However, try to make sure you aren’t swapping a fixed-rate loan (where the interest rate never changes) for a variable-rate loan (where the interest rate can increase). And make sure you won’t lose certain benefits or access to income-based repayment plans before you refinance.

How Nav Can Help Your Small Business

Consider Nav your small business partner. Just like student loans don’t need to hold your business back, neither should a lack of funding. When you’re ready to make your next move, we’re here to guide you through the financing process. It’s quick and easy to use Nav today — just input your business details to see your best funding options instantly.

Compare your financing options with confidence

Spend more time crushing goals than crunching numbers. Instantly, compare your best financial options based on your unique business data. Know what business financing you can qualify for before you apply, with Nav.

This article was originally written on August 24, 2022 and updated on August 25, 2023.

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Tiffany Verbeck

Tiffany Verbeck is a Digital Marketing Copywriter for Nav. She uses the skills she learned from her master’s degree in writing to provide guidance to small businesses trying to navigate the ins-and-outs of financing. Previously, she ran a writing business for three years, and her work has appeared on sites like Business Insider, VaroWorth, and Mission Lane.

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Using Student Loans to Start a Business: Is It Worth the Risk?

Ever wondered if it's possible to use student loans for your new business? Read on to learn the pros and cons.

Chances are, you’ve heard stories of young adults using their student loans to pay for trendy clothes, international trips, fancy dinners—nearly everything except their education. Maybe you know a few of them yourself.

While “living the life” is alluring, what if you put those funds toward starting a business instead? You may be wondering: Is it possible? And more importantly, is it legal ?

Well, keep reading to find out.

Can You Use Student Loans for Your New Business?

Overestimating the cost of attending college happens more often than you think. But if you find yourself with funds left over from your student loans, are you allowed to do whatever you want with them?

Technically, it depends on the terms of the loan agreement you signed with your lender. Contracts for federal student loans typically have very explicit terms for what the money can be used for. On the other hand, the agreements for private loans are often more open-ended.

Of course, these legal documents haven’t stopped borrowers from using their private or federal loans for personal expenses. A 2019 survey from Student Loan Hero found that, over summer break, only 10% of student respondents used their loans strictly for tuition. Instead, many used the money for:

• Bills (38%)
• Clothes (26%)
• Traveling (20%)

Colleges and universities can’t track what recipients use the money for, so unless you borrow more than the cost of attendance, there’s usually no way for them to find out if you’re using the money for non-specified purposes.

But while it’s not outright illegal to use your student loan money to fund your startup, there’s still plenty of risk involved.

If they find out, lenders can terminate your contract and take the funds back, which also means you’ll need to repay any money you’ve already spent (ugh, more monthly payments). You may also face legal action from your lender and even the federal government—adding legal costs, fees, and penalties to your final bill.

Because of the far-reaching repercussions of this decision, it’s best to raise startup funds in other ways and use your student loans as a last resort. If you feel that there’s no other option available to you, read on for the pros and cons of using student loans for your new venture, plus some ways to help minimize your risk.

Related Articles

Pros and Cons of Using Student Loans to Start a Business

• Many students will find it easier to qualify for student loans compared to traditional business financing options, as lenders are typically more lenient with their requirements for student loan borrowers.
• You may be able to get a better interest rate with student loans than with business loans, personal loans, or credit cards—especially if you haven’t built up your credit yet or don’t have the best credit score.
• Student loans allow you to pay back the amount over a much longer period of time, and you can adjust your repayment options if you need to. For instance, some allow for missed payments or temporary payment deferrals. Student loan payments generally start after graduation too, so you don’t have an immediate monthly payment to make like you do with credit cards.
• As mentioned earlier, using your student loans for your business is a risky move. Getting caught could expose you to a slew of financial and legal consequences.
• You’ll take on even more student debt—debt that may follow you for years after graduation (and endless monthly payments to budget for). Borrowing more money than you need to will also increase the total amount you owe over time, due to accruing interest.
• Compared to business loans, personal loans, and credit card debt, you can’t discharge student loan debt during bankruptcy. You’ll still be responsible for making payments on the debt even if you don’t have the means to repay.

4 Ways to Reduce the Risk of Using Student Loans for Your Business

1. determine how much you need to start your business.

Draw up a business plan to ensure you know exactly how much money you need to cover your startup costs. Some things to take into consideration include:

• Fees, licenses, and credentials needed to establish your business and authority
• Average marketing budget for startups in your niche
• Cost of producing or buying inventory
• Cost of setting up a website or online store
• Money to pay your employees or contractors
• Contingency budget for unexpected expenses
• Any other essential equipment, software, or resources needed to run your business

This exercise also has the added benefit of testing whether your idea is profitable enough to outweigh the risks of using student loans in the first place.

2. Cut Down on Your Living Expenses

Save money on textbooks, rent, food, and other expenses—and put that money toward your business—to reduce your total student debt. This comprehensive list offers college students 50 ways to save money and stretch their budget further.

Keep your cost of living down, cut back on impulse purchases, and sacrifice some of your enjoyment (and discretionary income) today so it pays off in a big way down the road.

3. Find a Business Partner

A business partner willing to finance your startup idea (or one who can access other means of funding thanks to a great credit score) can help lighten the load on your shoulders. The best business partners also carry a wealth of industry-specific expertise that can be even more valuable than the financial resources they bring to the table.

4. Look For Alternative Financing Options

The best way to minimize your risk with student loans is to avoid using them for your business altogether. But if you feel that it’s a necessary risk to take, consider using it as a supplement to other financing options so you use as little of your loan money as possible.

Here are some other ways to raise money for your business:

• Apply for a small business loan backed by the Small Business Administration for the most straightforward way to get business financing.
• Use a credit card to finance your business, since getting one is often easier than applying for a loan. Keep in mind, though, that credit cards typically carry higher interest rates than loans do.
• Look into online lenders. Many offer faster application processes than their brick-and-mortar counterparts, but they may also come with higher interest rates.
• Get a part-time job—or work full-time during the summer—and use the money you earn to fund your startup. Use this opportunity to learn what it takes to run a business and apply those lessons to your own company.

If you do siphon some of your student loan money for your startup, just make sure that all of your educational expenses are covered first. Otherwise, you’ll find yourself taking out even more student loans to cover the difference.

Is It Worth It to Use Student Loans for Your Business? The Decision Is Yours

If you’re a student with a business idea you’re excited about, funding your startup with your student loans might sound like the easiest way to get started. Even so, take some time to make sure that this is the best move for your personal finances too.

Student loan debt is a large financial burden that often sticks around for years—even decades—after you receive your diploma. Plus, there’s also the chance that you may get caught using the money for non-educational purposes.

Remember that student loans aren’t the only way to finance your business. Sure, the story of angel investors swooping in to save the day is nice, but keep in mind that many young entrepreneurs before you have started business empires with a shoestring budget. Think of this as your call to rise to the challenge too.

Written by Feli Oliveros , Freelance Contributor

Posted on March 16, 2022

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I'm interested in starting a business, but I have student debt. What do I need to know?

It is possible to have student loans and start a business, but it may be harder to access business credit and save enough cash to cover startup costs.

The impact of student loans on your ability to get a business loan

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 business.

If you’ve been unable to make your monthly payments on your student debt, your credit score will be negatively impacted. Many business lenders consider personal credit history in deciding whether or not to give you a loan. This requirement may put new graduates or those with high student debt at a disadvantage – and may be a roadblock if you are an aspiring entrepreneur. By repaying your student loans on time and in full each month, you can boost your credit profile .

If you have federal student loans, you may be able to lower your monthly payments by enrolling in Income-Driven Repayment . If you have a private student loan, you may be able to refinance your loans to lower your interest rate . Having a lower monthly payment will allow you to make your student loan payments while also investing in your new business.

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Reminder to employers and employees: Educational assistance programs can be used to help pay workers’ student loans; free IRS webinar will offer details

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IR-2023-152, Aug. 24, 2023

WASHINGTON — With the fall college semester quickly approaching, the Internal Revenue Service today reminded employers and employees that under federal law, employers who have educational assistance programs can use them to help pay student loan obligations for their employees.

As part of a wider effort to promote this benefit the IRS will hold a free webinar on Sept. 14 to help interested taxpayers and tax professionals better understand this special provision.

"The IRS wants to remind both employers and employees about this special feature that can help with student loans," IRS Commissioner Danny Werfel said. "There is a limited window of time for this educational assistance program, and the IRS wants to make sure employers don't overlook this option that can help businesses attract and retain workers."

Though educational assistance programs have been available for many years, the option to use them to pay student loans has been available only for payments made after March 27, 2020, and, under current law, will continue to be available until Dec. 31, 2025.

Traditionally, educational assistance programs have been used to pay for books, equipment, supplies, fees, tuition and other education expenses for the employee. These programs can now also be used to pay principal and interest on an employee's qualified education loans. Payments made directly to the lender, as well as those made to the employee, qualify.

By law, tax-free benefits under an educational assistance program are limited to $5,250 per employee per year. Normally, assistance provided above that level is taxable as wages.

Employers who don't have an educational assistance program may want to consider setting one up. In a tight labor market, worthwhile fringe benefits such as educational assistance programs can help employers attract and retain qualified workers.

These programs must be in writing and cannot discriminate in favor of highly compensated employees. For information on other requirements, see Publication 15-B, Employer's Tax Guide to Fringe Benefits . For details on what qualifies as a student loan, see Chapter 10 in Publication 970, Tax Benefits for Education .

The IRS is taking a number of steps to highlight this important provision.

A free 75-minute webinar will begin at 2 p.m. ET on Thursday, Sept. 14 and will include a question-and-answer session. To register for the webinar or for more information, visit the Webinars for Tax Practitioners page or the Webinars for Small Businesses page on IRS.gov.

The IRS will also be sharing more information about this through e-newsletters that reach the small business, tax-exempt and tax professional communities as well as highlighting this through IRS social media channels.

In addition, Sen. Mark Warner of Virginia shared the following quote:

As student loan repayments resume, employers should take full advantage of educational assistance programs that can be used to help pay student loan obligations for their employees," said Sen. Mark Warner of Virginia. "This benefit not only provides a pathway towards student debt relief for borrowers but also gives employers the ability to recruit and retain high-quality talent. I'm grateful that the IRS is continuing to conduct meaningful outreach to ensure that both employers and employees are seizing this opportunity.

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The Business Case for Employee Student Loan Repayment Programs

Student loan relief plans are becoming a valuable recruiting tool, and there are other reasons for companies to get more aggressive about aiding staffers with debt woes.

​The stats are in, and when it comes to U.S. student loan debt, they're not pretty.

This year, 45 million Americans owe student loans worth more than $1.4 trillion, a figure that has risen 116 percent in the last decade, according to 2019 data from consumer credit reporting company Experian.

Among other financial and emotional calamities, younger adults in the U.S. are often saddled with years of substantial monthly payments, with potentially huge ramifications. For instance, paying back these loans often means postponing saving for retirement, delaying marriages, and putting off buying a home and establishing community roots.

For managers and human resources professionals, overwhelming student loan debt could also lead to younger staffers being distracted and unfocused at work and steer them toward moonlighting jobs that further sap their physical and emotional energy.

With more student loan borrowers speaking up about their plight in the workforce, some companies have become more aggressive about offering student loan repayment help.

Take Raytheon, which recently rolled out a new program to help employees save for retirement while repaying their student loans.

Eligible employees at the Waltham, Mass.-based company who aren't able to make student loan repayments and also contribute to their 401(k) can get a company matching contribution (three or four percent, depending on years of service) if their student loan repayments reach the percentage of the company match that meets the firm's eligibility criteria.

The program, called the Raytheon Savings and Investment Plan, will see accruals start growing in 2020, with company contributions deposited in employees' 401(k) accounts in the first quarter of 2021, company officials say.

"We're always searching for innovative ways to offer competitive pay and benefits to current and prospective employees," says Mike Bull, vice president of Total Rewards at Raytheon.

That said, caveats abound with student loan repayment plans, and cost is at the top of the list.

"These plans can improve employee financial wellness, increase productivity and retention, and attract better employees," says Fred Amrein, founder of PayForED, a college loan services company. "But on the downside, student loan repayment plans are expensive per employee and only help a limited number of employees."

Loan repayment plans are fairly expensive in comparison to other benefits, as well. "It's unclear if they pay off since the retention and productivity benefits are not proven yet," Amrein adds.

Appealing to Millennials

Younger professionals are beginning to take notice of employer-based student loan relief programs, with some staffers wondering why their own companies aren't getting on board.

"I graduated from law school with over $200,000 in student loans, and I'm not alone," says Erika Kullberg, a former corporate attorney with Morrison & Foerster in Tokyo who now runs her own YouTube channel teaching finance to Millennials.

Kullberg says it's "not uncommon" to see young attorneys in her former industry with more than $200,000 in student loan debt.

She believes that if companies want to attract young talent, they need to step up their game on helping employees pay off their student loans.

"If my law firm had a student loan repayment assistance program, that would be an easy way to differentiate the law firm from other law firms and attract top students across the country," she says. "A student loan repayment assistance program would really help to instill loyalty—it would also show employees that the company actually understands their pain points."

Kullberg says that she would "much rather have" a student loan repayment assistance program in place at her company than any other perks or benefits, even if those benefits amounted to thousands of dollars in value. "Right now, student loan repayment assistance is much more meaningful," she says.

There's no doubt that demand for student loan repayment assistance programs is strong with younger career professionals. Data from Student Loan Hero shows that 54 percent of younger employees prefer a student loan payment assistance program over a 401(k) plan (45 percent of all employees feel the same way).

Yet according to SHRM's 2018 Employee Benefits Survey, only 4 percent of companies actually offer a student loan repayment aid program.

The Pros and Cons

According to a 2018 study by Willis Towers Watson, a global advisory company, employers contributing to student loan repayment are projected to grow from 4 percent in 2018 to 32 percent by 2021. Meanwhile, employers offering student loan consolidation is estimated to jump from 8 percent to 34 percent over the same timeframe.

Business experts say companies that offer student loan repayment help are finding such relief plans to be a valuable recruiting tool, and that they should be even more aggressive about aiding employees with student loan debt woes.

"These programs can be a great incentive for employees that have student loan debt," says Robert Farrington, founder of TheCollegeInvestor.com, an online personal finance and investing platform for Millennials. "Student loans are a burden, and if the employer can take some of that burden off their shoulders, it can significantly improve recruitment and retention."

For employers, the "pros" in offering student loan help are abundant, Farrington says.

"Employees appreciate income, bonuses and incentives in the first place," he says. "Given that student loans are a burden for 45 million Americans—mostly Americans in the workforce—student loan relief programs are an especially solid benefit that can be useful and impactful for companies."

Gaining happier, more productive employees is perhaps the biggest motivator for companies mulling over a student loan repayment assistance program.

"At this point, the benefit of paying student loan debt offers more of an intangible benefit for the company," says Matt Ruttenberg, business development officer for Life Inc. Retirement Services, a 401(k) services firm that's starting to work with companies on student loan aid plans. "It's well known that financially secure employees come to work happier, engaged and motivated. That benefit naturally flows downhill and creates a more profitable environment."

As student loan debt is a heavy burden that weighs on the psyche of people, mental health benefits come into play as well. "Many people already know how long it will take to pay off by using simple online calculators," Ruttenberg says. "But when having an employer who's willing to take on that burden with you and bring that payoff date closer, it brings a much higher level of appreciation toward the employer."

On the downside, such plans may not be helpful for older workers or those without debt.

"The system isn't quite set up to benefit all sides of this new age offering," Ruttenberg adds. "For now, the benefit is more of an intangible solution than a financial one for the employer."

Higher cost issues may also force companies to choose between one employee benefit and another.

"Saving for retirement is also extremely important, and by diverting matching contributions, companies could be harming their employees' ability to save for the long term," Farrington says. "Additionally, the tax benefits aren't as strong for workers compared to a 401(k) or IRA plan."

With the cost of repaying employee student loan debt amounting to potentially millions of dollars or more, depending on the size of the company, small businesses must carefully consider the pros and cons of such programs.

"Student loan repayment programs take funds from the employer without providing an obvious payoff, and many employers are hesitant to implement them," says Deni Sharp, a student loans expert at the financial comparison site Finder.com who has worked for Arizona State University and Grand Central University advising students on financial issues.

A Benefits Expert's Take on Student Loan Payment Assistance Plans

Lydia Jilek, director of voluntary benefits at Willis Towers Watson, offers a unique glimpse into how employers can ensure the financial health of their employees through student loan repayment assistance.

Here are the key issues she sees for companies considering the implementation of a student loan assistance plan:

Don't try to keep up with the Joneses. Employers hear the buzz about brands offering student loan benefits and think they need to follow suit. But don't do this just because it's the next hot thing, Jilek says.

"Are you hearing from your employees that this is a real need?" she asks. "Assess first if it's critical to your employees and prospects. Companies in tech, financial services and health care have more adoption, as well as employers with headquarters off the beaten path who are using loan repayment as a way to sweeten the pot and attract new talent to remote locations."

Know that the student loan struggle is a family affair. While it may seem as if today's young grads are the only ones impacted by student loans, often the burden impacts older employees, too. "Loan repayment perks can help the 'Sandwich Generation' of Boomer parents caught between caring for their aging parents and taking on the loans of their children as well," Jilek says.

Creative student loan benefits may soon go mainstream. "Today, innovative companies like Abbott are making it possible for employees to pay off their loans on time—without neglecting their financial future," Jilek says. "For every student loan payment the employee makes, the employer contributes a match into a 401(k) toward their retirement savings. The U.S. Treasury will rule as early as this summer on whether all employers can do this moving forward."       —B.O.

Implementation Considerations

Like any corporate employee initiative, a little knowledge goes a long way. Launch your student loan assistance program with these action tips:

Get your employees involved. Begin with some preliminary information-gathering so you know exactly where you stand.

"To get started properly, take a poll of your employees," says Ruttenberg. "Get to know them on more of a personal level to see if they're taking on the burden of student loan debt, or if the majority is more concerned about saving for retirement or even health care. If you're not quite ready to take on all three of these, then start with your employees' suggestions and needs. Then work on implementing the rest when you're ready."

Take a piecemeal approach. You'll also want to start small and work your way up as you get a better grip on the issue of student loan debt in your workplace.

"Unlike tuition assistance programs, student loan repayment plans do not equate to a more qualified employee," says Sharp.

However, since student loans are one of the biggest burdens for today's employees, companies often want to consider some type of loan assistance program.

"Some companies are offering assistance programs as simple as contributing $100 a month towards the employee's principal loan amount," Sharp says. "That's a relatively small amount when you consider that employees have expressed willingness to lose vacation days in exchange for loan assistance. Being able to help employees, stand out to recruits and even cut other expenses allows loan repayment assistance programs to be cost-efficient overall."

Dare to be different. It's OK to get creative with your student loan assistance plan, as that's exactly what many other companies are doing.

"Different companies have implemented loan repayment programs in different ways," Sharp says. "Some employers offer benefits such as agreeing to contribute to retirement accounts as long as the student is contributing a certain amount to their student loans. Other companies are offering direct loan payment options, while others are partnering with refinancing companies to help offer lower group interest rates [at little to no cost to the company]."

Pitching In on Student Loan Payouts

Companies that launch student loan repayment plans usually limit their per-employee payouts to around $100 per month.

That's what PWC did when it rolled out its Student Loan Paydown program in 2016, offering younger employees with college debt $1,200 per year for six years. The company says the program has been a boost to its talent recruitment efforts.

Other companies go even higher. For example, Aetna offers full-time employees up to $2,000 annually in student loan repayment assistance, and caps that assistance at $10,000. Part-time employees get help, too, with loan repayment assistance of up to $1,000 annually, with a $5,000 cap limit.

Fidelity Investments is in the same ballpark. It offers employees struggling with student loan debt $2,000 annually, with a $10,000 cap.

Chegg, an education technology firm, bases its student loan repayment plan disbursements on seniority—only in reverse. For instance, entry-level employees qualify for up to $5,000 a year in loan repayment assistance, while senior staffers qualify for up to $3,000.

Clearly, companies want to help their younger staffers burdened with student loan debt to pay down their loans. There's also little doubt that company decision-makers view student loan repayment assistance plans as a significant recruiting tool, with companies such as Fidelity and Aetna being more aggressive about payouts with an eye on gaining top talent in return.   —B.O.

Use it to recruit. Don't hesitate to use your loan assistance plan as an employee marketing tool once it's up and running.

"Employee benefits are vital when recruiting high-quality employees," Ruttenberg says. "If you end up offering a loan repayment benefit, lead with it. If the demographics of your ideal employee have student loan debt, then offering something different than your competition will give you the upper hand."

Additionally, getting every employee on board, whether they're a student loan borrower or not, is crucial to a plan's success.

Factor in all of your employees. Not every employee has a student loan debt problem, so there should be a carrot—and no stick—for them, too.

"Companies will need to consider how their loan repayment aid program will be received by employees who don't have student loans," Sharp adds. "Consider if there are ways to offer those employees additional benefits so that there's no animosity."

Be careful with third-party benefits providers. "Many of the third-party providers don't really offer 'student loan assistance,' but rather steer borrowers to student loan refinancing," Farrington says. "For example, we've seen programs like 'guaranteed rates' for employees. These programs can be harmful for borrower employees because student loan refinancing is usually only the best approach for a small percentage of student loan borrowers. Most need assistance navigating the complex options of federal student loan repayment, and simply need dollars put towards their student loans."

In Farrington's opinion, the best repayment programs "are simply a monthly deposit directly towards a student's loan account."

Brian O'Connell is a Bucks County, Pa.-based freelance business writer .

Illustration by Daniel Baxter.

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How to Start a Business With Student Loan Debt

There Are Many Options to Help You Succeed

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• Small Business
• Online Business
• Home Business
• Entrepreneurship
• Operations & Success

Know What You Owe and Make a Plan

• Explore Your Repayment Options

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Financing your startup.

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Sabrina G. Anwah is an entrepreneur and founder of D.C.-based creatives services and communications firm, Words Into Hype. She works with clients to improving their business visibility and increase their revenue by evaluating their goals, identify their strengths, target the appropriate audiences, and produce attention-getting, intriguing and accurate content

Getting a college education these days can be a costly endeavor. If you are an aspiring business owner, but are worried about your student loan obligations precluding your ability to establish and/or finance a business , there is good news—many options exist to help you succeed in both arenas.

If you want to start a business, gaining control of your personal finances will help you when it comes to establishing your new venture. The status of your loan repayments can affect your credit score and hamper your ability to find financing, attract business partners, and work with needed vendors. If you have neglected to address your student loans, the time to take action is now.

Knowing what student loan repayment options are available to you and establishing and working out the details of your business’s feasibility and startup costs will start you off in the right direction.

Do you know exactly how much you owe on your student loans? How about your interest rate? Having a general idea is not good enough. Here are some crucial steps to follow: 

• Call your loan servicer to get answers to the above questions and any other pertinent, related information that you need. 
• Once you know the total amount you owe, determine what you are able to pay at your current income level. 
• Calculate how long it will take you to become debt-free at your current rate of pay (there are plenty of online debt calculator options). 
• Find out if there are any steps you can take to increase the amount you pay monthly.

Explore Your Repayment Options 

Federal loan repayment.

If you owe federal student loans, there are several repayment options to explore. In addition to a standard repayment plan, there are graduated, extended, pay-as-you-earn, income-based, income-contingent, and income sensitive plans. Keep in mind, though, that not all loans qualify for all repayment plans.   

To find out which plans you may be eligible for and to estimate your monthly payment under each plan, use the loan simulator on the Federal Student Aid website.

Private Loan Repayment

Many private loan providers also offer repayment options. Some of these options include allowing you to defer payments while in school or during military service, or make interest-only payments after a separation period.   Another option to consider is consolidating and/or refinancing your loans, because it may be easier to keep track of one loan than it is of two or three. There are now several companies that consolidate or refinance student loans at low rates, including CommonBond, SoFi, Discover, and College Ave. Be sure to check all the details before you make the switch. 

While you are working on paying off your debt, make sure to take the time to develop your business acumen.

Start by researching and determining if your idea is unique to the marketplace or if you’re just adding another option to an already crowded field. Either way, it’s worthwhile finding out what the market will bear. 

If you have a product or service in mind, there are several important questions your first need to address, including:

• What is your value proposition?
• How much will it cost to develop and produce your product? 
• What equipment will you need? 
• If you are offering a product or service, who is your target audience or client base, respectively? 
• What’s the risk of your idea failing? 

Once you have a well-rounded base of knowledge in every aspect involved in establishing your business or product—development, production, distribution, supply chains , and tax implications included—you should have a much clearer idea of its feasibility.

For additional help on starting your business, the Small Business Administration (SBA) provides a step-by-step guide .

Now that you have the information, calculate how much money you need to get started in your venture. The SBA, once again, provides a free resource to help you . Typically, you will need to have enough money to cover the cost of product development, permits and licenses, insurance, leasing space or equipment, marketing, and taxes. 

Banks and credit unions offer a number of small business loans, but there are also several government grants available to businesses that qualify from Grants.gov, the U.S. Department of Agriculture (USDA), and more.  

Additional Tips and Resources for Starting a Business 

Starting a business while handling your student loan obligations may be a challenge, but by educating yourself and taking action, you can realize your dream. Here are a few more helpful tips and resources. 

• Get a mentor or coach : One option is to contact SCORE , an organization that fosters small business communities through mentoring and education. It also offers help on starting a business on a small or non-existent budget.
• Don’t be afraid to start small : Some of the most successful companies like Apple, Dell, and Facebook were born out of their creators’ dorm rooms and homes, so don’t be afraid to start small. Explore home-based and online business options as an initial way to bring your product or service to market. 
• Share the load : Find a business partner or two who can bring their strengths (and, perhaps, higher credit scores) to bear on the project. 
• Investigate nontraditional funding alternatives: These include angel investors, crowdfunding, microlending, and startup incubators .
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Courtney Johnston

Senior Editor

Courtney Johnston is a senior editor leading the CNET Money team. Passionate about financial literacy and inclusion, she has a decade of experience as a freelance journalist covering policy, financial news, real estate and investing. A New Jersey native, she graduated with an M.A. in English Literature and Professional Writing from the University of Indianapolis, where she also worked as a graduate writing instructor.

CNET staff -- not advertisers, partners or business interests -- determine how we review the products and services we cover. If you buy through our links, we may get paid.

CNET editors independently choose every product and service we cover. Though we can’t review every available financial company or offer, we strive to make comprehensive, rigorous comparisons in order to highlight the best of them. For many of these products and services, we earn a commission. The compensation we receive may impact how products and links appear on our site.

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The 5 best mba student loans of august 2024, these top lenders offer low-rate, flexible loans to help pay for your mba education..

Earning an MBA can be expensive, so many turn to graduate school loans to help foot the bill.

Federal student loans for graduate students are a good starting point. With Direct Unsubsidized Loans, you can borrow up to $20,500 each academic year, and Direct PLUS Loans let you borrow up to the full cost of attendance. But if you need more funding to fill the gap after federal loans, or if you have good credit and can score a lower interest rate by going private , a lender offering MBA student loans can be a strong second option.

To find the best MBA student loans, we compared lenders' interest rates, whether they offer both fixed and variable rates, any rate discounts with autopay, as well as lenders' credit requirements and eligibility, repayment terms and fees. (See our methodology for more information on how we chose the best MBA student loans.)

Best MBA student loans

• Best from an online lender : College Ave®  
• Best from a brick-and-mortar bank : Citizens Bank
• Best for applying with a co-signer : Sallie Mae®
• Best for applying without a co-signer : Ascent
• Best for refinancing : SoFi®

*Rates used below are for the respective lenders' graduate student loans (unless otherwise indicated) and, when applicable, include an autopay discount.

Compare student loan refinancing rates

Best from an online lender, college ave, eligible borrowers.

Undergraduate and graduate students, parents

Loan amounts

$1,000 minimum; maximum cost of attendance

Range from 5 to 20 years

Variable and fixed

Borrower protections

Deferment, forbearance and grace period options available

Co-signer required?

Only for international students

Offer student loan refinancing?

Yes - click here for details

Terms apply.

• High loan amount
• Flexible repayment terms
• Variable and fixed rates, so you can choose
• Borrowers have hardship protections
• No co-signer required for U.S. students
• Offers co-signer release
• No origination, application or prepayment fees
• 0.25% interest rate discount for autopay
• Offers student loan refinancing
• Accepts in-school payments
• Non-cosigned loans tend to charge higher interest rates
• Co-signer release can't be made until half of repayment term has passed

Who's this for? College Ave stands out from other online MBA student loan lenders for its quick application process and variety of loan terms to choose from, including five-, eight-, 10- and 15-year terms.

Standout benefits: College Ave also offers student loan refinancing and a nine-month grace period.

[ Jump to more details ]

Best from a brick-and-mortar bank

$150,000 maximum, or cost of attendance, whichever is lower

Range from 5 to 15 years

Forbearance options available

• No co-signer required
• Up to 0.50% interest rate discount for autopay
• Loan amount is limited to $150,000 maximum, or cost of attendance, whichever is lower

Who's this for? Citizens Bank is ideal if you want to borrow for your MBA from a brick-and-mortar bank and get in-person banking access. There are over 1,000 Citizens Bank branches for all your other needs. Citizens will offer a unique loyalty discount , where you can earn a 0.25% interest rate discount on your MBA student loan if you have (or if your co-signer has) a qualifying Citizens account at the time of application.

Standout benefits: College Ave offers student loan refinancing and a six-month grace period.

Best for applying with a co-signer

Sallie mae student loan.

Undergraduate and graduate students, borrowers seeking career training

$1,000 minimum; maximum up to cost of attendance

Range from 10 to 15 years

Deferment and forbearance options available

Read our Sallie Mae student loan review .

• Loans available to part-time students
• Co-signer release after 12 payments
• No student loan refinancing
• No parent loans
• Hard credit check to prequalify 
• Doesn’t disclose credit score requirements
• Late fee and returned payment charge

Who's this for ? You should consider Sallie Mae if you're applying for an MBA student loan with a co-signer and want a fast co-signer release option. With any private lender, you have a better chance of scoring a lower rate if you have a co-signer. Sallie Mae lets you release that co-signer after you graduate, make 12 on-time principal and interest payments and meet certain credit requirements.

Standout benefits: Sallie Mae's MBA student loans are available for less than half-time enrollment. As a borrower, you can get a six-month grace period, plus internship or fellowship deferment for 12-month increments, up to 48 months total.

Best for applying without a co-signer

Ascent® funding.

Qualifying undergraduate juniors and seniors, graduate students

Up to $200,000 for undergraduate and $400,000 for graduate loans

• Considers borrowers with no credit
• Up to 1% interest rate discount for autopay
• 1% cash back rewards
• Doesn't offer student loan refinancing

Who's this for? Ascent is ideal if you're applying for an MBA student loan without a co-signer. Any non-cosigned student loan will have a higher interest rate than a cosigned student loan, but Ascent's rates are on the lower end for this type of loan, letting students without a co-signer qualify on their own even with poor credit .

Standout benefits: Ascent offers many graduate student loan terms. There's a nine-month grace period, plus deferment of MBA school loans for up to 36 months while enrolled at least half-time.

Best for refinancing

Undergraduate and graduate students, parents, health professionals

$5,000 minimum (or up to state); maximum up to cost of attendance

Range from 5 to 15 years; up to 20 years for refinancing loans

Offer parent loan?

• 0.125% interest rate discount on any additional SoFi lending product
• No co-signer release option available
• Loan size minimum of $5,000

Who's this for? SoFi is worth considering if you want to refinance your MBA student loan. Refinancing gives borrowers a shot at scoring a lower interest rate, as well as a different repayment term. SoFi offers competitive refinancing rates, and the lender's student loan refi calculator allows you to see how much you could save by refinancing your student loans.

Standout benefits: There's no maximum limit for a SoFi student loan and there are a range of loan terms available. You have access to a six-month grace period, plus member benefits  like exclusive rate discounts, access to financial advisors, networking events and more. Plus, you can earn and redeem points to pay down your SoFi MBA loan and, currently, you can score a new cash bonus of up to $250 with a 3.0 GPA or higher.

More on our top MBA student loans

College Ave offers MBA student loans ranging from 3.87% to 14.49% fixed-rate APR and from 5.59% to 14.49% variable-rate APR. These rates include a 0.25% autopay rate discount.

Eligible loans

Undergraduate and graduate loans, graduate health professions and parent loans

5, 8, 10, 15 years

[ Return to account summary ]

Citizens Bank

Citizens Bank offers MBA student loans ranging from 4.24% to 14.09% fixed-rate APR and from 5.99% to 15.09% variable-rate APR. These rates include a combined 0.50% loyalty and autopay rate discount for Citizens account holders.

Undergraduate and graduate loans, parent loans

5, 10, 15 years

Sallie Mae interest rates are competitive with other private lenders. It offers MBA student loans ranging from 3.99% to 14.48% fixed-rate APR and from 5.37% to 14.97% variable-rate APR. These rates include a 0.25% autopay rate discount.

Undergraduate and graduate loans, health professions, medical and dental residency loans, bar study loans and career training student loans

10, 15 years

Ascent considers those without established credit, as well as those who meet the minimum credit requirements but not the income or repayment requirements. In these cases, the lender looks at other factors like a borrower's school, program, graduation date, major, GPA, cost of attendance and Satisfactory Academic Progress (SAP).

Ascent offers MBA student loans ranging from 4.79% to 15.41% fixed-rate APR and from 7.84% to 15.95% variable-rate APR. These rates include a 0.25% autopay rate discount.

Undergraduate and graduate loans, health professions and PhD, Master’s loans

$2,001 minimum; maximum up to $200,000 for undergraduate loans; up to $400,000 for graduate loans

5, 7, 10, 12, 15, 20 years

SoFi offers MBA student loans ranging from 3.99% to 14.83% fixed-rate APR and from 5.74% to 15.86% variable-rate APR. Its refinancing rates are 5.24% to 9.99% fixed-rate APR and 6.24% to 9.99% variable-rate APR. These rates all include a 0.25% autopay rate discount.

Undergraduate and graduate loans, parent loans, health professions loans

$5,000 minimum (or up to state); no maximum

5, 7, 10, 15, 20 years

How to get an MBA student loan

To get an MBA student loan, first apply for financial aid and federal student loans by filling out the Free Application for Federal Student Aid ( FAFSA ). This form will also indicate grants, work-study programs and scholarships you may be eligible for. Federal student loans don't take into account your credit, offer pretty low fixed rates and have borrower protections that private lenders do not. If you're currently working, see if your employer has a company-sponsored program to help you foot the bill of business school.

For any financial gaps you have after doing the above, you can consider getting funding from a private lender on this list. Those with good credit will have a better chance at scoring an interest rate on the lower end of the ranges they offer, and you'll often find that the fixed rates are lower than the variable rates lenders advertise.

How to choose an MBA student loan

To choose an MBA student loan, compare the rates offered, as well as funding limits and loan terms. You'll also want to see if the private lender has made public their credit score and/or minimum income requirements to see if you qualify. You may want to consider getting a creditworthy co-signer to sign onto your loan and increase your odds of a better interest rate.

Can you take student loans for an MBA?

You can take out student loans for an MBA. First start by seeking out federal student loans, which are issued by the U.S. Department of Education. For graduate students, your federal student loan options are Direct Unsubsidized Loans and Direct PLUS Loans. If you still need financing afterward, consider private student loan lenders like those on this list.

Is it worth taking out a loan for an MBA?

It can be worth taking out a loan for an MBA since a business degree can help you advance in your career and earn a higher salary, as well as make you more marketable. It's generally advised with all student loan debt, however, to not take out more than you'll earn immediately after graduation.

Can MBA students get financial aid?

MBA students can get financial aid through the FAFSA. Also, many MBA programs will offer their own merit- and need-based scholarships to students.

What is the interest rate for MBA loans?

The current interest rates on federal student loans for graduate students are as follows: Direct Unsubsidized Loans are 7.05% fixed and Direct PLUS Loans are 8.05% fixed. The interest rates for private MBA student loans, however, vary greatly depending largely on your credit score and whether you choose fixed or variable.

Why trust CNBC Select?

At  CNBC Select , our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every student loan review is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of student loan products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics. See  our methodology  for more information on how we choose the best MBA student loans.

Money matters — so make the most of it. Get expert tips, strategies, news and everything else you need to maximize your money, right to your inbox.  Sign up here .

Our methodology

To determine the best MBA student loans, CNBC Select compared private student loan funding from national banks, credit unions and online lenders. We narrowed down our ranking by only considering those that offer competitive student loan rates and prequalification tools that don't hurt borrowers' credit.

While the companies we chose in this article consistently rank as having some of the market's lower interest rates for business school loans, we also compared each company on the following features:

• Broad availability: All of the companies on our list offer undergraduate and graduate private student loans, and they all offer variable and fixed interest rates to choose from.
• Flexible loan terms:  Each company provides a variety of financing options that borrowers can customize based on their monthly budget and how long they need to pay back their student loan. Each company also allows borrowers to start repaying their student loans while still in school, ultimately saving them money.
• No origination or signup fee: None of the companies on our list charge borrowers an upfront "origination fee" for taking out their loan.
• No early payoff penalties:  The companies on our list do not charge borrowers prepayment penalties for paying off loans early.
• Streamlined application process:  We made sure companies offered a fast online application process.
• Autopay discounts:  All of the companies listed offer an autopay interest rate discount.
• Private student loan protections: Each company on our list offers some type of financial hardship protection for borrowers.
• Loan sizes:  The above companies offer private student loans in an array of sizes, all the way up to the cost of college attendance. Each company advertises its respective loan sizes, and completing a preapproval process can give borrowers an idea of what their interest rate and monthly payment would be.
• Credit requirements/eligibility: We took into consideration the minimum credit scores and income levels required if this information was available.
• Customer support:  Every company on our list provides customer service available via telephone, email or secure online messaging. We also opted for lenders with an online resource hub or advice center to help borrowers educate themselves about student loans in general.

We also considered CNBC Select audience data when available, such as general demographics and engagement with our content and tools.  

Note that the rates and fee structures for private student loans are not guaranteed forever; they are subject to change without notice and they often fluctuate in accordance with the Fed rate. Choosing a fixed-rate APR will guarantee that one's interest rate and monthly payment will remain consistent throughout the entire term of the loan.

A borrower's interest rate depends on their credit score, income, debt-to-income (DTI) ratio, savings, payment history and overall financial health. To take out private student loans, lenders will conduct a hard credit inquiry and request a full application, which could require proof of income, identity verification, proof of address and more.

Catch up on CNBC Select's in-depth coverage of  credit cards ,  banking  and  money , and follow us on  TikTok ,  Facebook ,  Instagram  and  Twitter  to stay up to date.

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A $49,000 monthly student-loan bill and incomplete debt relief: Borrowers are facing confusion as repayment looms

• Some student-loan borrowers are running into hurdles leading up to the payment resumption.
• Insider spoke to borrowers with inaccurate monthly statements and incomplete debt relief.
• While their loan companies said the issues might be fixed, there's a time constraint with interest restarting in September.

When Jess saw what her monthly payment would be in October, she couldn't believe her eyes: $49,726.63 due on October 15, according to documents reviewed by Insider.

Jess — who requested to use a pseudonym for privacy but whose identity is known to Insider — knew when she was alerted by her student-loan company on August 1 that this payment is a mistake. So she called the company, and a customer service representative agreed that the five-figure monthly payment is not accurate. But Jess said she's called four times already, and her balance has yet to be fixed — and interest on her loans will resume in two weeks regardless.

"It was obviously unreasonable," Jess said. "You'd have to be unable to fog a mirror to think that this was reasonable. There's just no way. Absolutely no way."

After an over three-year pause on federal student-loan payments and interest to give borrowers financial relief during the pandemic, interest is set to accrue again starting in September , with bills due one month later . Jess has a $198,906 outstanding balance she was planning to pay off on an income-driven repayment plan — prior to the pause, she said she was paying around $137 a month. With her payments currently set on auto-debit, she's worried the nearly $50,000 payment will not be resolved by the time the pause ends, and money she does not have will be withdrawn from her account.

"If they don't change anything, at a very minimum, what happens is I immediately go into default, because there's not enough money in my bank account," she said.

Jess's incorrect monthly payment statement is just one of the challenges borrowers are facing as President Joe Biden's Education Department and federal student-loan companies work to transition millions of borrowers back into repayment. It's an unprecedented transition, and with every borrower having a unique repayment situation, broad guidance on repayment often is not sufficient.

Related stories

Scott Buchanan, executive director at the Student Loan Servicing Alliance — a group overseeing federal student-loan servicers — told Insider that the issues borrowers are experiencing can be traced back to the lack of resources at the Education Department .

"They don't have enough resources to provide the services and we can only put as many people on the phone as the department can pay for, and so that is a generalized constraint," Buchanan said. "Then, some of the challenges we've had in the past have been about lack of coordination, which is when the department makes major announcements, doesn't tell anybody that they're going make them. We have to staff based upon what we know is coming down the pike. And I think that that is one of the the other concerns here."

"So it's combination of both things, which is just that there's only a limited amount of resources to provide staffing and when we have these huge spikes, because of some sort of communications, then there's not an ability to really provide any more resources because the government doesn't have those resources," he added.

An Education Department spokesperson told Insider that the department will continue to regularly communicate with borrowers, along with working with its contractors to help borrowers determine their best repayment options. The spokesperson also said it is in frequent communication with servicers to ensure they are communicating directly with borrowers about their options for repayment. 

The Education Department has previously acknowledged that minimal funding poses challenges to its operations, and it requested Congress increase funding for the upcoming fiscal year's budget by $620 million — something it said "is essential to support students and student loan borrowers."

"The increase would allow FSA to continue to operate the student aid programs, implement critical improvements to student-loan servicing, continue to modernize its digital infrastructure, and ensure successful administration of the financial aid programs through a simplified and streamlined application process for students and borrowers," the department previously said .

'It feels utterly hopeless'

Amid concerns with the repayment resumption, the Education Department had some good news for borrowers — it has begun discharging $39 billion in student debt for over 800,000 borrowers who made the qualifying 20 or 25 years of payments on income-driven repayment plans. This announcement was part of the department's one-time account adjustment to get relief to borrowers who have reached the repayment threshold.

Karin Smith, 57, was one of the borrowers who was notified she was eligible for relief, and on Tuesday, she was happy to see that her $71,000 loan — the biggest of the three loans she held — was gone. But the $14,0000 interest on that loan was still there, and tacked onto her smaller $8,000 balance, according to documents reviewed by Insider. She said she called customer service and they told her to wait ten days to see if the interest goes away. But with interest on her other federal loans set to start building again in September, Smith said she's worried it won't be resolved in time.

"It feels utterly hopeless," she said. "It's not that I'm not glad that the $71,000 has gone, but it's just like, I'll die with this. And my 16-year-old is getting ready to go to school himself and I'm still paying off my loans. It's been 30 years, haven't I done enough?"

Along with the hurdles Jess and Smith have run into, Insider has previously spoken to borrowers in the past who could not reach their loan company due to hours-long hold times with customer service, leaving them in repayment longer than they needed to be. Insider previously reported that one company, Nelnet's, call center temporarily shut down during an influx of requests from borrowers. 

Additionally, some borrowers have told Insider via email and on X, formerly Twitter, that they are unable to access their payments due to technical errors on the loan company's website, making it impossible to financially plan for repayment. Nelnet, one of the federal servicers, told a borrower on X that "there could be a few reasons why payments are not showing. The best assistance for this issue will come from a representative on the phone. That way if needed they can research the issue further for you." Of course, the long hold times make doing so difficult.

As Buchanan said, the issue for the servicers are limited resources — and it's something Education Secretary Miguel Cardona is asking Congress to address .

"Right now, House Republicans are pursuing an appropriations bill that cuts $22.5 BILLION from education," Education Secretary Miguel Cardona wrote on X last month. "It's the lowest allocation in 15 years. They are defunding education. Let's call this what it is - a Republican attack on our students' futures."

Are you experiencing challenges with repayment? Do you have a story to share about student debt? Email this reporter at [email protected] .

Update: August 21, 2023 — This story was updated after publication to include comment from the Department of Education.

Watch: Why student loans aren't canceled, and what Biden's going to do about it

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How Do Business Loans Work?

• Common Uses

Business Loans vs. Personal Loans

• Factors Considered
• Types of Loans

Business Loans vs. Business Line of Credit

Business loan fees, the bottom line.

• Small Business

Business loans provide short- and long-term financing for companies

Matt Webber is an experienced personal finance writer, researcher, and editor. He has published widely on personal finance, marketing, and the impact of technology on contemporary arts and culture.

Katie Miller is a consumer financial services expert. She worked for almost two decades as an executive, leading multi-billion dollar mortgage, credit card, and savings portfolios with operations worldwide and a unique focus on the consumer. Her mortgage expertise was honed post-2008 crisis as she implemented the significant changes resulting from Dodd-Frank required regulations.

A business loan is a type of financing that is used by businesses. Companies can get business loans from a bank, an online lender, or a credit union. The borrowed funds are made available as either a lump-sum payment or a line of credit. Businesses must then repay their lender according to the terms of the loan, which dictate the length of the repayment term and the interest rate charged.

Key Takeaways

• A business loan is a loan taken out by a business to pay for business expenses such as equipment purchases, to cover operating expenses, or to expand into new markets.
• There are different types of business loans, each suitable for a different purpose and a different type of company.
• Business loans often have lower interest rates and more generous repayment terms than personal loans.
• Almost any business can apply for a business loan, but a lender may require extensive documentation during the application process.

A business loan works similarly to a personal loan, though there are important differences between these two loan types.

The first step in applying for a business loan is to find and meet with a lender . A lender will assess what scale of financing it can offer, as well as the other terms of the loan. Any business can apply for a business loan, and for this reason, the terms of business loans vary widely.

Negotiating Power

Bigger, more established companies have more negotiating power and can typically get the most favorable borrowing rates. Small businesses operating in volatile markets have less bargaining power. So they might not be offered as favorable a deal on a business loan.

Secured and Unsecured Loans

Some business loans are secured loans , which require a company to provide collateral (an asset) that can be repossessed if it fails to repay the loan. Real estate, equipment, cash, or investments can be used as collateral.

Secured loans can have lower interest rates. They can provide smaller businesses that have less credit history access to needed capital.

Other business loans are unsecured , meaning that they don’t require collateral. Getting an unsecured loan depends on the size and age of the business, relationship history with the lender, and other underwriting factors.

Once a loan's terms are agreed upon, the lender makes funds available, either as a lump-sum payment or a line of credit. The loan terms define how much you have to repay, how frequently you must make repayments , and how much interest you must pay. If you make all payments on time, the loan is then closed. If you do not, financial penalties may apply.

Common Uses for a Business Loan

When you apply for a business loan, typically you'll have to disclose what you plan to use the money for and how you plan to repay it.

You can use a business loan for almost any kind of business expense. However, you can’t use it for personal expenses. For instance, you can’t use your business loan to buy residential property or a personal vehicle. Doing so will break the terms of your loan agreement.

Business loans are frequently used for:

• Startup costs
• Commercial real estate purchases and/or remodeling
• Cash flow for everyday expenses
• Debt consolidation or refinancing
• Equipment purchases
• Inventory purchases
• Business acquisitions
• Business expansion
• Business franchising
• Marketing and advertising
• Refinancing 

You can sometimes use one business loan to pay off another business loan. This may make financial sense if by refinancing, you get a better interest rate than that charged for your original loan.

While business loans and personal loans are similar in many ways, there are several important differences between them:

• Personal loans are usually unsecured, whereas a business loan often requires collateral and may require you to spend the funds in a particular way.
• Business loans generally offer longer repayment terms (up to 25 years for a U.S. Small Business Administration (SBA) loan), and you can generally borrow more than on a personal loan.
• Business loans also typically have lower interest rates than personal loans. As of May 2024, the average rate on a personal loan is around 12%. Traditional banks can offer business loans with single-digit interest rates.
• Business loans can be more difficult to qualify for because your lender will check your business credit score and credit history. If that alone doesn't qualify you, you might have to provide a personal guarantee , as well. That means that if your company can't repay the loan, you'll be obligated to do so.
• Personal loans generally have a faster application process than business loans. Most personal loan lenders now offer a pre-qualification process, which allows you to see if you’re eligible without completing a full application. If you want a business loan, it might take weeks before you have your funds.

Factors Considered for a Business Loan

Almost any business can apply for a business loan but each must meet specific criteria to be approved. Most lenders will consider several key factors such as:

• Credit score : Lenders may consider your personal credit score , your business credit score, or both. The higher your score, the more likely you are to be approved, and the better the loan terms you are offered.
• Cash flow : Lenders will want to see how much money your business takes and how you spend it.
• Time in business : Lenders prefer to lend to businesses with a proven track record, and most won’t lend to businesses that are less than two years old.
• Debt : If you already have business debts , you may find it more difficult to get a business loan.
• Industry : Lenders want to minimize risk, so they are hesitant to lend to businesses that operate in volatile markets. Many lenders will also refuse to lend to businesses related to gambling, weapons, cryptocurrency, and marijuana.

Business loans are used for a wide variety of purposes. Depending on the lender, your business, and what the loan is for, you may be asked for additional documentation.

Types of Business Loans

There are various types of business loans, each suitable for a different purpose. The most common types of business loans are:

• Term loans : These are the simplest type of business loan, where you will receive a lump sum and pay it back over several years.
• SBA loans : These are loans from the SBA that generally have low rates and long repayment periods.
• Working capital loans : These loans are used to pay for operating expenses to keep businesses solvent.
• Equipment loans : These loans are used to purchase specific equipment that a business needs to operate.

In addition, there are more unusual business loan types:

• Invoice factoring or invoice financing loans : These involve selling unpaid invoices to a third party in exchange for a fee.
• Real estate business loans : These are used to buy real estate for a company; generally, the real estate becomes collateral for the loan.
• Microloans : These are loans designed for small businesses that involve an amount of less than $50,000. They typically require a personal guarantee.
• Merchant cash advance : This is a lump-sum loan that is repaid with a percentage of future credit card sales.
• Franchise loans : These are loans specifically to buy a franchise .

A business line of credit is a more flexible financing option that functions similarly to a credit card. A lender extends a predetermined credit limit to the business, and the business can draw from this limit as needed, only paying interest on the amount borrowed. As the business repays the borrowed funds, the credit line is replenished, allowing the business to borrow again up to the limit.

One difference between a business loan and a line of credit is how they impact a business's financial planning. With a business loan, the fixed repayment schedule provides predictability, enabling businesses to budget accordingly. However, this also means that businesses are committed to the repayment terms, even if their financial situation changes. On the other hand, a line of credit offers more flexibility since businesses can borrow only what they need when they need it.

You may also see different qualification criteria and usage for these two financing options can differ. Business loans often require a more extensive application process since you get a lump sum of cash upfront. With a line of credit, you may have more lenient qualification requirements though it might come with higher interest rates.

As you secure business loans, you may come across different types of fees. You may not be charged all of these fees, but more common types in the industry are:

• Origination Fee : An origination fee is a one-time charge that lenders impose for processing a new loan application. This fee typically covers the administrative costs of underwriting the loan and is usually calculated as a percentage of the total loan amount.
• Application Fee : Some lenders charge an application fee to cover the costs associated with processing a loan application. This fee is typically non-refundable, even if your loan application is denied.
• Late Payment Fee : If you miss a payment or make a payment after the due date, your lender may charge a late payment fee . This fee is typically a flat amount or a percentage of the missed payment and is designed to encourage timely payments.
• Servicing Fee : Some lenders charge an ongoing servicing fee, which covers the cost of managing and administering the loan over its lifetime. This fee might be a flat monthly charge or a small percentage of the outstanding loan balance.
• Collateral Appraisal Fee : If your business loan requires collateral, the lender may require an appraisal to determine the value of the asset. The cost of this appraisal is typically passed on to the borrower as a collateral appraisal fee.
• Draw Fee : For business lines of credit, some lenders charge a draw fee each time you withdraw funds from your credit line. This fee is typically a small percentage of the amount drawn, and it’s in addition to the interest you’ll pay on the borrowed funds.
• Annual Fee : Certain business loans, particularly revolving lines of credit, may come with an annual fee. This fee is charged yearly and is meant to cover the cost of maintaining your account.

Can I Use a Personal Loan for My Business?

Some personal loans can be used to fund a new or existing business. However, you should check to be sure that a lender doesn’t impose any restrictions on business use.

Can You Have More Than One Business Loan?

Yes, you can, as long as you meet the criteria for an additional business loan. However, having multiple loans can get expensive and complicated.

What Happens If My Business Cannot Pay Back a Loan?

Each loan has different repayment terms, but late repayments generally lead to financial penalties. If you continue to miss payments, then your lender may seize your collateral.

Are Business Loans Regulated?

Historically, business loans have been less regulated than personal loans. This may be changing as some U.S. states take a greater interest in implementing stricter disclosure rules for business loans.

A business loan is a type of financing used by businesses. Typically, a bank or other financial institution will lend money to a business. That money must be paid back over a defined term with interest.

There are different types of business loans, and they can be used for a wide range of business purposes.

If you're thinking about a business loan, bear in mind that practicing good financial management over time can help your business establish a favorable business credit score . That can help you when it's time to get a loan.

U.S. Small Business Administration. “ Terms, Conditions, and Eligibility .”

Board of Governors of the Federal Reserve System. “ Consumer Credit—G.19 .”

Bank of America. “ Small Business Loans & Financing .”

U.S. Small Business Administration. “ Microloans .”

Bloomberg Law. " State Regulatory Landscape Shifts for Commercial Loan Lenders. "

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