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How Can I Defer a Student Loan to Start a Business?
Published on Aug 29, 2013
Drowning in debt? Young entrepreneurs who help kick start the economy are the future of the United States’ economic success.
Drowning in debt? Young entrepreneurs who help kick start the economy are the future of the United States’ economic success. Following college graduation, however, the last thing on the minds of most recent graduates is incorporating a company. A key factor in this inability to make their brilliant idea a reality is student loans. Nearly seven million Americans have fallen behind on their student loans, and millions more are barely able to make their payments each month. If student loans are keeping you from incorporating a business and running your own start-up, there are solutions out there that can help you get your business up and running.
Deferring Student Loans
In recent years, the overall burden recent graduates have faced amounts to more than average credit debt. For this reason, many potential entrepreneurs are turned off by the idea of starting up – they instead seek a steady paycheck. Once earning a consistent income – no matter how small – it’s difficult to switch gears and risk even deeper debt by starting a corporation. If you want to start a business and are concerned about your student loans, you may have the option to defer your loans – but first you must qualify. A deferment excuses you from making student loan payments for a set period of time because of a specific condition in your life – whether it is returning to school, economic hardship or unemployment. During the deferment period, interest won’t accrue on subsidized loans.
The Income-Based Repayment Plan
If you don’t qualify for loan deferment, there are other avenues you can take if you wish to incorporate a company. The government has worked to make forming a corporation as easy as possible for those struggling financially, as the benefits of young entrepreneurs on the nation’s economy has been proven time and again. SBA.gov offers something called the ‘Student Startup Plan,’ which, in their words, means you can ‘Defer Loans. Not entrepreneurship.’ Their Income-Based Repayment (IBR) Plan is meant to ease student loan burdens for low-wage earners looking to incorporate a business – whether it is an LLC or a nonprofit incorporation.
The IBR Plan helps those burdened by student loans keep their Federal loan payments affordable through payment caps based on income and family size. For low-income student-loan borrowers, the IBR Plan limits loan payments to 15 percent of discretionary income. To find out what your student loan debt payment would be, use the IBR Calculator offered by the Federal Student Aid Office. If you’re an entrepreneur who has dreams of incorporating a small business but are making – for example – less than $20,000 in annual income – your Income-Based Repayment is zero. Additionally, if your monthly IBR payment amount doesn’t cover the interest that accrues on your student loans each month, the Federal government will pay your unpaid accrued interest for up to three consecutive years. The IBR Plan is definitely worth consideration! Wondering if you’re eligible? Check out SBA.gov for more information.