Post-college life

How I refinanced my student loans as a freelancer without giving up my freedom

In 2008, Joseph Rollins graduated with a bachelor’s degree in marketing—and about $75,000 in student loans. Unfortunately, the recession that began in 2008 made finding gainful employment as a new grad difficult.

“When I graduated, the economy was in terrible shape, so finding a job was tough,” he tells CommonBond. “I had to defer my loans to make ends meet for a few years until I was able to start making decent money and start tackling it.”

Rollins eventually went on to become a full-time freelancer, paving his own way. Rollins represents a unique subset of the workforce—a self-employed freelancer who's also managing a good amount of student debt. It's a tricky situation to be in.

Refinancing his student loans was his saving grace, as it lowered his interest rate and reduced his monthly payments.

In order to qualify for a refinance loan with a reasonable interest rate, most lenders require applicants to provide proof of employment and solid income. If you're a freelancer whose income fluctuates from month to month, this could present a hurdle.

The good news? Refinancing is actually more accessible than you might think, even for those with inconsistent income. Here's how Rollins turned things around:

Re-evaluating Student Loan Debt

Like most people with student debt, Rollins’s balances were spread across multiple loans—four private loans, to be exact. All of his loans had one thing in common: they were all variable-rate loans. Unfortunately, Rollins didn't have the financial wiggle room at the time to accelerate his payments.

Student loans come in a number of shapes and sizes. Public loans are backed by the federal government and, as such, come with some mandatory borrower protections. This includes the option to defer your loans, postpone making payments, or opt into income-based repayments.

Most insiders recommend maxing out federal loans before seeking private ones. The downside, however, is that federal loans cap out once you hit a certain limit. First-year students, for example, can only borrow up to $5,500 in direct loans; $9,500 for those who aren't listed as dependents.

This is where private loans come in, picking up the slack where federal loans fall short. Private loans are beneficial in that you can borrow more, and often at a competitive rate if you go with the right lender. Every lender is different, but many offer unique borrower protections of their own.

Since Rollins had variable-rate private loans spread across four different accounts, making headway began to feel impossible.

“My rates just kept increasing. At one point, my payments ballooned to about $600 per month,” says the 32-year-old marketing consultant and blogger. “As I moved through my career and started earning more, I began worrying less about survival and more about paying down debt.”

Rollins felt like there was no muscle behind his monthly payments. He was shelling out $600 every month, but not really chipping away at his balances. “My rates ranged from about 4 percent to 9 percent, and I felt like I was never going to catch up,” he says.

His wife suggested refinancing, so he started researching refinance loans. During a refinance, the borrower takes out a new private loan to pay off all existing balances. With one balance and one monthly payment, a refinance loan can convert multiple high-rate loans into one lower-rate loan.

Refinancing as a Freelancer

As a freelancer, your income stream may be less reliable in the eyes of lenders, who may ask you to meet stricter requirements. Regardless, whether you have a 9-to-5 job, a side gig, or are a full-time freelancer, there are some general requirements to qualify for a refinance loan, such as:

  • A qualifying credit rating: A strong credit score is key, as it indicates to lenders just how creditworthy you are. If you fall short, bringing in a cosigner may be enough to level the playing field. (More on this in a bit.)
  • Employment verification: Lenders need reassurance that you'll make good on your loan. Verifying your employment shows that you're gainfully employed and actively working.
  • Reliable income: This is where it can get tricky for freelancers, as their income may fluctuate from month to month. Lenders want to see a steady flow of incoming money to prove your ability to repay a refinance loan.

These requirements can be a tall order for some freelancers, but certainly not impossible.

Locking down a steady stable of clients is the foundation of any successful business—and freelancing is a business. As a self-employed worker, your income is directly linked to your client base.

It can be a slow build, but attending networking events and leveraging your personal and professional networks are great places to start. Marketing is also pivotal. Regardless of your industry, getting your name out is how you create a reliable stream of inbound work.

Effective budgeting is the other side of the coin. Prioritize building a strong emergency fund to protect against income ups and downs.

Similarly, it's wise to spread your income sources to reduce risk. If, for example, one client makes up 90 percent of your income, what will you do if the work unexpectedly dries up?

A Student Loan Refinancing Success Story

“When I was refinancing, it was around when I was transitioning from a consultant to someone who's more self-employed, which was actually a little bit of a hurdle,” says Rollins, who ultimately had his wife cosign for him. “Luckily, I had all my tax forms in order and could show my income, but her cosigning helped me get a better rate and more flexible terms.”

Unlike regular employees, freelancers generally don’t have taxes deducted from their paychecks. But that doesn't mean they're exempt from paying them. Instead, if you are self-employed, the Internal Revenue Service (IRS) requires that you submit estimated tax payments every quarter.  

Check with your accountant regarding how much of your gross income you should be setting aside for quarterly tax payments. Every time you get paid, automatically transfer that amount to your savings account for safekeeping. This way you'll be fully prepared to make those payments when the time comes.

Because Rollins had his paperwork in order, his application process was a headache-free affair. The best part is that he took himself from being at the mercy of his student loans to placing himself in the driver's seat.

The take-home message here is that while freelancers may have to jump through more hoops to qualify for a refinance loan, it's certainly within reach for many. The key is being prepared and partnering with a lender who's got your back. CommonBond can help make the process a little easier.

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