4 Steps for Repaying Your Student Loans on a Variable Income

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Working for yourself can be rewarding, and is becoming increasingly common in our so-called gig economy. However, being self-employed often comes along with having a variable income. One given month of income could be the highest in your work history, while the next month could be the lowest. You also might have to deal with various payment schedules from clients. This is a different lifestyle than getting a regular paycheck every two weeks.

This can certainly be stressful when it comes to paying bills such as student loans. So, how can people with a variable income pay off their student loans and ensure they have enough money to live on and pay their other bills? Here are a few tips to consider:

1. Be aware of your regular monthly expenses
2. Make your student loan bill a top priority
3. Know your income averages
4. Have an emergency fund
Other things to consider when paying off student loans with a variable income

1. Be aware of your regular monthly expenses

If you have a variable income, it’s important to be very aware of your expenses, and to create a budget comprised of both necessary and discretionary expenses. The necessary expenses must be paid no matter what your income is in any given month. Discretionary expenses are in the “unnecessary” category.

Keep in mind that people who have variable incomes also need to consider other responsibilities that traditionally employed people do not, including quarterly estimated tax payments and health insurance premiums.

If you create a budget to include your student loan payment as a necessary expense, you may increase your chances of being prepared to lay out that money when it’s due.

2. Make your student loan bill a top priority

If you always ensure your bills are covered in key areas such as housing and utilities, you can do the same with your student loan payment. Once your student loan is paid off, you’ll have more money each month to devote to improving your business, or to put toward retirement, or even to pay for items such as fun nights out and travel.

Because of these considerations, you can treat your student loan payment as one of the most important bills you have, along with your rent and utilities.

If you’re short on cash, you can opt to cancel your cable service, try to get a better internet package, skip the co-working space or scrimp on extra office supplies, but never skimp on your student loan bill. By treating your student loan bill as a top priority and a “need” rather than just another monthly bill, you can give it more focus.

3. Know your income averages

Knowing your average monthly income can be a useful tool in helping you decide how high of a student loan payment you can make. It can be scary to send in, say, an extra $500 — or even $50 — to your student loan servicer, especially if you don’t know what the next month will bring as far as income goes.

However, if you have a sense of your monthly averages and there hasn’t been a major shift in your business, you can feel more confident knowing you can afford a certain payment.

Still, this will take time to figure out. If you are new to having a variable income, you should wait until you can average several months of income. If you’ve had variable income for years, you can average 12 months to get a sense of what to expect. If you continue to network and add clients, your monthly income will likely increase over time, allowing you to potentially make higher student loan payments.

Our prepayment calculator can help estimate how much money and time on your loan you might save by making extra payments. We should note here that one thing you should consider before making extra student loan payments is any other debt you might be carrying, such as high-interest credit card debt. If you have a lot of credit card debt, it may be more worthwhile to concentrate on making extra payments toward that debt while making just the minimum payments on your student loan debt, as student loans typically have much lower interest rates than credit cards.

You should also understand that, with a freelance lifestyle, something may unexpectedly happen and dramatically change your income average. This can be either a positive or a negative. For instance, you might gain some new business that adds a significant boost to your income. On the other hand, you may lose a big client who has been providing a significant portion of your income for several months or even years. You should aim to always be prepared for this scenario.

4. Have an emergency fund

One way in which you can be prepared for the unexpected is by having an emergency fund. Such a fund can help ensure you always have backup cash to make your student loan payments and cover other regular expenses.

For example, if you’ve calculated that you can afford a $400-per-month student loan payment based on your monthly expenses and income averages, you should continue to pay that each month, always keeping it a top priority with your other vital monthly expenses.

However, if you have a bad month in which a key client doesn’t pay, or a large expected contract doesn’t come through, you might be concerned about making that $400 payment in addition to all your other financial responsibilities. This is where having an emergency fund will help you to keep your monthly budget on track. You can borrow from yourself, and as soon as you have a high income month again, you can refill your emergency fund.

You can start an emergency fund slowly, funnelling what you can into a high-yield savings account whenever you get a payment from a client. You might make it a goal to grow it to cover six months of expenses, an amount many financial experts recommend, although even having just $1,000 to $2,000 on hand at all times can be helpful.

Using all these tips, you should not only become more aware of your monthly spending and business expenses, but you should also have a better handle on just how much you can afford in student loan payments. This estimate might allow you to pay well above the minimum to pay off your student loans faster, or it will let you know where you need to cut back so you can make your payments on time. Then you’ll be well on your way to being student loan debt-free.

Other things to consider when paying off student loans with a variable income

Making student loan payments a priority is a good rule of thumb, but sometimes life gets in the way. This can be especially true if you are someone who makes a variable income.

One of the benefits of student loan debt is that, if you are having trouble making payments, you can work with your loan servicer on getting a deferment or forbearance. This means that, in times of hardship, you can avoid having to make student loan payments. There are also income-driven repayment programs you may be able to take advantage of, which can help lower your monthly student loan bill.

So even though it can be a good idea to treat your student loan payment as a necessary one, the fact is that it doesn’t always have to be, particularly if you are in a rough financial situation. You don’t have the same options with, say, your electric bill, that you do with your student loan bill.

Check out our deferment, income-based repayment and public service loan forgiveness calculators to further explore these student loan options.

Rebecca Stropoli contributed to this report.

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1 Important Disclosures for Splash Financial.

Splash Financial Disclosures

Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.

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Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of Feburary 1, 2021.


2 Important Disclosures for Earnest.

Earnest Disclosures

To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.

Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.49% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.34% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of October 26, 2020, and are subject to change based on market conditions and borrower eligibility.

Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.

The information provided on this page is updated as of 10/26/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.

© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.


3 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. ‍All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.15% effective Jan 1, 2021 and may increase after consummation.


4 Important Disclosures for LendKey.

LendKey Disclosures

Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it  endorse,  any educational institution.

Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of  5 years and is reserved for applicants with FICO scores of at least 810.

As of 02/17/2021 student loan refinancing rates range from 1.91% APR – 5.25% Variable APR with AutoPay and 2.95% APR – 7.63% Fixed APR with AutoPay.


5 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance: 1. Fixed rates from 2.99% APR to 6.99% APR (with AutoPay). Variable rates from 2.25% APR to 6.53% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.25% APR assumes current 1 month LIBOR rate of 0.12% plus 2.38% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. See eligibility details. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The discount will not reduce the monthly payment; instead, the interest savings are applied to the principal loan balance, which may help pay the loan down faster. Enrolling in autopay is not required to receive a loan from SoFi. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score.Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.

6 Important Disclosures for PenFed.

PenFed Disclosures

Annual Percentage Rate (APR) is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rates range from 2.99%-5.15% APR and Variable Rates range from 2.17%-4.47% APR. Both Fixed and Variable Rates will vary based on application terms, level of degree and presence of a co-signer. These rates are subject to additional terms and conditions and rates are subject to change at any time without notice. For Variable Rate student loans, the rate will never exceed 9.00% for 5 year and 8 year loans and 10.00% for 12 and 15 years loans (the maximum allowable for this loan). Minimum variable rate will be 2.00%. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.