Rideshares like Uber and Lyft have become a popular side-hustle for knocking out student debt.
The flexibility of picking your hours is often presented as a perk, but inconsistent earnings can make formulating a student loan repayment strategy difficult.
Fortunately, there are several resources that student loan borrowers can utilize to make sure that their hard work makes a significant difference.
Keeping Federal Student Loan Payments Low
For the vast majority of federal student loan borrowers, the income-driven repayment (IDR) plans are the best option. By enrolling in an IDR plan, borrowers can make monthly payments based upon their income, rather than how much they owe. The goal behind the IDR plans is to make sure that all federal student loan borrowers can afford their monthly payments. Borrowers with smaller incomes may even qualify for $0 per month payments.
The gig economy can complicate things.
Typically, borrowers enrolling in an IDR plan will submit their most recent tax return or two recent pay stubs to document their income. Because Uber and Lyft drivers are not salaried employees and do not earn the same amount each shift, the pay can vary greatly. Borrowers coming off a strong month of earnings would be wise to document income using a recent tax return. Submitting paystubs showing high earning month will result in the student loan servicer assuming that the borrower has the same strong earnings year-round.
Similarly, borrowers that have had a recent drop in income should work with their loan servicer to make sure that their monthly payments reflect their reduced income.
Sherpa Savings Tip:Retirement contributions are a great way to lower federal student loan payments. Money contributed to certain retirement plans, such as an IRA, is not treated as taxable income and therefore does not impact federal student loan payments. Setting aside money for retirement while fighting student debt can be hard, but it is a great way to stretch earnings as far as possible.
Student Loan Forgiveness for Uber and Lyft Drivers
Public service student loan forgiveness is arguably the best and most popular forgiveness program. Unfortunately, rideshare work will not qualify for PSLF because the employer is not an eligible government or non-profit organization.
However, numerous other loan forgiveness programs can be utilized by Uber and Lyft drivers. The best option available may be forgiveness under an Income-Driven Repayment (IDR) plan. IDR forgiveness comes after 20 to 25 years worth of payments. While forgiveness via the IDR route can be very time consuming, it offers a path to debt freedom for all borrowers, regardless of how much they make or how much they owe.
Tips for Knocking Out Private Student Loans
Private student loan contracts are far less generous than federal student loans.
They can also be more complicated because each lender has their own policies and rules for borrowers.
However, several tactics can be used somewhat universally:
Student Loan Refinancing – One of the most common resources for private student loan borrowers is a refinancing. In a student loan refi, older high-interest debt is paid in full, and a new loan with better terms is created. Steady income and a strong credit score are required, but borrowers can lower their student loan interest rates down to about 2%.
Borrower Assistance Programs – Many lenders will make special accommodations for borrowers who are truly struggling to handle their debt. These accommodations can include lower monthly payments and reduced interest rates. Enrollment isn’t easy, but it can result in significant savings.
Focus on High-Interest Debt – Paying extra on all of your student loans is a good way to get them paid off faster. Focusing extra payments on one the loan with the highest interest rate is even better. In fact, it can save thousands.
Maximizing Side Hustle Efforts
Student loan borrowers who use Uber and Lyft as a second job may benefit from using their earnings exclusively to knock out student debt.
Not all drivers can afford to use this option, but those that can will find that it makes a noticeable difference in their student debt.
The idea is relatively simple: each mile driven brings the borrower closer to student debt freedom. When the debt is eliminated, the former borrower may decide that they no longer need a second job.
Having a clearly defined goal and an incentive at the finish line can be very motivating.
Final Thought: Have a plan
When it comes to eliminating student debt, hard work is only part of the equation.
Taking the time to research as student loan plan and define a clear strategy can get rid of student loans years ahead of schedule. Resources exist to help borrowers in a wide range of financial circumstances.
Those who combine a strong work ethic with a well-researched plan will have the best odds of debt elimination success.