How to Pay off Student Loan Debt as a Freelancer/Contractor

Many recent college graduates may find themselves freelancing for income while also struggling with student loan debt. Here we discuss the many different ways you can pay off your student loans as a contractor.
April 29, 2019

The gig economy is growing at a rapid rate as countless opportunities to make money open up online. In fact, the McKinsey Global Institute found that 20-30% of the working population currently engages in some form of freelance work in the United States and Europe alone.

Alongside the rising number of freelance contractors, the number of Americans earning a college degree is also at an all-time high. Many recent college graduates may find themselves freelancing for income while also struggling with student loan debt.

Repayment Plans & Tips Based on Your Situation

Repaying your student loans as a freelancer can be risky because your income may fluctuate every month. The method for tackling your student loan debt will largely depend on your current income and work situation.

You have dependable projects and can afford your payments

If you built up your freelancing career and have dependable projects, then you may be in a good position. With greater income, you should have more flexibility in paying back your loans.

If you’re comfortable financially, then you should consider sticking to the 10-year standard repayment plan which is the default plan for federal student loans. Alternatively, a private student loan repayment term may range from 5 to 15 years.

A 10-year plan consists of 120 monthly installment payments over the time period. If you plan on sticking to a basic payment schedule, this is the fastest way to pay back your student loans. Furthermore, you can pay them off faster if you have the leeway to make additional payments.

You have inconsistent projects and income fluctuates regularly

Many first-time freelancers may struggle with inconsistent work and income that fluctuates from month-to-month. This can make following a standard 10-year repayment plan more challenging.

If you find yourself in this situation, consider applying for an income-driven repayment (IDR) plan. These plans will cap your monthly payments at a percentage of your monthly income. If you’re making less, then you will pay less. This is a good way to stay current on your payments and avoid default. Note: there are no income-driven plans for private student loans.

However, there’s an important caveat to IDR plans. Depending on your income, a 10%-capped payment may not be enough to cover your minimum interest payment. This means you are not paying down part of the principal balance; interest will accrue and capitalize on a larger balance each month. Your student debt may increase as opposed to decreasing! This will drive the cost of the loan significantly.

You're Experiencing a Downturn

If you’re currently experiencing a slump in work, you still have options despite the difficult situation. There are several ways to avoid entering default or delinquency.

IDR plans still may be a good option, but there are other options. If the situation is dire, then you can apply for forbearance or deferment. Both options suspend payments for set period of time. Note: deferment and forbearance options may not be available for private student loans; contact your lender for more information.

These options are reserved for emergency situations. Deferment and forbearance do not remove the obligation of repayment, and you only have a certain amount of time before payments start again. Furthermore, loans in forbearance will continue to accrue interest, driving the cost of the loan.

Other Tips for Paying Down Student Loans

Bi-Weekly Payments

A self-sufficient way to pay down your student loans more quickly is with bi-weekly payments. You simply make half-payments every two weeks. Throughout the year, this schedule amounts to 13 monthly payments over 52 weeks – as opposed to 12 on the standard schedule.

This method requires hands-on budgeting and proactivity, so it may be a hassle. However, it’s a good way to may loans back quickly under your own power.

Student Loan Refinancing

Student loan refinancing involves taking out a new loan with a private bank or lender to pay off all or some previous student loans.

If you are a qualified applicant, then you may be able to both save money and pay off your loans faster, provided you get a lower interest rate on the refinanced loan. The lower rate will help save on interest costs, and you have the option to restructure your repayment term as well.

It is possible to refinance your loans as a freelancer, but private lenders will require a good credit score and a high income. Unqualified applicants are more likely to be rejected or receive unfavorable loan terms, so this may be a no-go for certain freelancers. You may be able to improve your chances of qualifying for student loan refinancing if you apply with a cosigner or guarantor, however, not all companies that offer refinancing allow applicants to add a cosigner.

Debt Avalanche Method

The debt avalanche method is one of the best ways to manage multiple loans and save money in the process. It can also be done entirely under your own power through budgeting.

In short, you focus on making larger payments on the loan with the highest interest rate first, while making minimum payments on the remaining loans. Once the high-interest loan is paid, make larger payments on the next high-interest loan. Continue this method until all your loans are paid off.

This method requires diligence and patience. It may put a heavy demand on your budgeting abilities, but it is one of the fastest ways to pay off multiples loans through budgeting.

Andrew Rombach is a Content Associate for LendEDU – a website that helps consumers and small business owners with their finances. When he’s not working, you can find Andrew hiking, hanging with his cat Colby, or edge guarding in Super Smash Bros.