Are you a freelancer or contract worker? Do you drive for Uber or Lyft? Maybe you have a side hustle? If so, your income may vary from week to week or month to month.
Fortunately, this won’t affect your eligibility for an income-based student loan repayment plan. And, if you’re struggling, there are options to lighten the load.
You’re Not Alone
Today, more people than ever are working in the so-called gig economy. By one estimate, there are somewhere between 54 and 68 million “independent workers” participating in the US workforce. Some choose this option for the freedom it provides. Others do it temporarily while they seek out other opportunities.
Regardless of why they do it, gig economy workers almost unequivocally cite uneven cash flows (or concerns about potential variability in income) as one of the primary drawbacks of this lifestyle.
For a lot of college grads, this unpredictability can add to the stress many are already dealing with when it comes to paying back student loans. However, an income-based repayment plan can help to make things a little more manageable, and having a variable income isn’t always a big deal.
How Your Income-based Student Loan Payment is Calculated
Under income-based repayment plans, including IBR, PAYE, and REPAYE, payments are calculated as a percentage of a borrower’s discretionary income, which is which is itself calculated by subtracting 150% of the federal poverty limit from adjusted gross income. The exact percentage differs according to the plan.
Each year, borrowers must “recertify” their income and family size (your family size is a factor in calculating discretionary income) with their student loan servicer. This allows the loan servicer to recalculate your payment, ensuring that its adjusted for your current income. You must do this even if there are no changes in your income.
You Don’t Have to Re-certify Your Income Right Away You’re not obligated to update your loan servicer until they contact you, even if there are changes mid-year that might impact your payment. So, if your income tends to fluctuate throughout the year, you don’t have any special obligations to worry about. You can simply wait until your loan servicer contacts you to recertify and update them with your adjusted gross income from your most recent tax return.
What if Your Income Changes Dramatically Mid-Year?
Now, let’s say your income does change mid-year – maybe you lost a big client or a steady stream of work dried up – and you’re having trouble making your student loan payments. You do have the option to update your student loan servicer about your financial situation.
Essentially, this involves filing a new application for an income-based repayment plan. You’ll be asked to document your income. And, if you don’t have a source of income, you’ll have the option to indicate this on your application. Again, you’re not obligated to report changes until your loan servicer contacts you, but doing so may help to make your payments more manageable.
Earning a living as a freelancer or contract worker can be tough. One of the biggest challenges, of course, is that your cash flows may vary from week to week or month to month. Fortunately, whether you’re signed up for PAYE, REPAYE, or IBR, your variable income won’t have any impact on your monthly student loan payment. But, if you run into trouble and you don’t expect your income to pick up again any time soon, you do have the option to request that your lender adjust your payment to reflect your current income.