6 Questions to Ask Before Freelancing With Student Loans


Do you have student loans and want to pay them off faster?

Most advice on how to make this happen revolves around the importance of spending less and earning more. Both are critical steps to take if you want to pay down your student debt ASAP — and save as much money on interest as you can.

When it comes to earning more, freelancing or consulting in your spare time is a great source of extra income. In fact, you may even be able to take freelancing a step further and make it a potential new career path if you excel at it.

But if you want to make the leap as a full-time freelancer and still have student loans, you need to take stock of a few things when it comes to self-employment. Here are six questions you should ask yourself before making a final decision on your situation.

1. Will a career switch impact any repayment plans?

If you’re currently taking advantage of student loan repayment programs, make sure you understand the financial eligibility requirements around those plans. Especially if changing your career will potentially disqualify you from such benefits.

For instance, if you’re currently in the Public Loan Service Forgiveness (PSLF) program, switching careers could have a negative effect. That’s because PSLF requires you to work in a government or not-for-profit position while you repay your loans.

And if you’re no longer working in public service, you won’t be eligible to have your remaining balance forgiven after making 120 qualifying payments on your loans.

A change in earnings could also impact any income-based repayment plans (IBR) you’re currently utilizing. Keep in mind that some of these are reevaluated on a yearly basis.

What’s more, if you want to freelance and earn more money, your student loan payments within an IBR plan could increase after your first year of self-employment if you successfully boost your income.

2. Is your income stable and sustainable?

You may freelance to earn extra money to pay down your student loan debt faster. And you may find that you earn just as much, or maybe even more than your current day job.

This makes it really tempting to quit your job and jump straight into self-employment. After all, isn’t making more money on your own a green light for making the leap? Maybe. But you first need to determine whether that income is here to stay.

It’s possible you could be riding the wave of a trend that could die out before the year is over. Or, maybe your work is seasonal. And you happened to pick up freelance work during a busy time of the year for your products or services.

Making great money as a freelancer today is no guarantee of making any money tomorrow. So before you make the switch, you need to test the long-term viability of your income.

For most people, that simply means maintaining your freelance gigs in addition to your day job long enough to establish your own personal trend.

A full year can serve as a good benchmark. That allows you to cycle through all the seasons and may help you understand if there are slow and busy periods during those times. Then, you can plan ahead for those times should you become a full-time freelancer.

But if you still have student loans, make sure you’re fully confident you’ll have full-time employment as a freelancer. You don’t want to risk losing your income while you still have that debt.

Plus, the longer you can keep your freelance work on the side of your day job, the more extra money you can make to pay off those loans.

3. Do you have your financial priorities in order?

Before you give up the steady paycheck that comes with your current job, look at your whole financial situation.

If you’re already struggling to save cash for emergencies or contributing to retirement accounts, taking the financial risk of freelancing may be too much. Especially while you’re still paying off student loans.

Overall, there are a few financial priorities you should take care of first before making a major career transition from employment to self-employment. One of them is establishing and maintaining an emergency fund.

The general rule for an emergency fund is three to six months’ worth of your income saved. However, you may want to increase that to six to 12 months’ worth if you freelance.

There is more risk and greater financial responsibility attached to freelance work. So having a larger emergency fund is the smart way to go.

Another financial priority to consider is contributing to a retirement account. Remember, as a freelancer, there are no employer-provided 401(k)s with matches. Therefore, you need to provide for your own retirement.

The great news that’s pretty easy to do. You can start by going through a traditional IRA, Roth IRA, or SEP IRA. You can also look into SIMPLE IRAs and Solo 401(k) plans for the self-employed.

Probably the most important financial priority to keep in mind is paying more than the minimum on your student loans.

While it is possible to freelance while you have student loans, you still need to have your debt under control. That means not missing payments, not making late payments, and not paying just the minimum.

Consider setting up a repayment strategy for your student loan. Then prove to yourself that you can stick to it by building up the habit before making a big career change.

4. Have you established a freelancer business plan?

You don’t need to create formal documents or paperwork to start your career as a freelancer. That’s part of the beauty of this kind of work: you can just get out and do it.

However, writing out a business plan for yourself as a freelancer can help you think through potential challenges and possible solutions to problems.

Additionally, you can anticipate your needs and obstacles to overcome. Planning for them today instead of scrambling to figure it out when it happens can help immensely. Especially if you have the pressure of your student loan payments weighing down on you.

A simple business plan will most likely answer the following:

  • What services or products you offer, and at what price?
  • Who you provide your services or products to?
  • Who is your target audience?
  • What makes your business unique from the competition?
  • How will you reach your target audience and market your business?
  • What resources will you need to keep your freelance career running?
  • How will you get these resources or pay for them?
  • How will you generate new customers and keep existing customers?

5. How long will it take you to repay your loans?

This is another factor to consider. If you’re extremely close to being debt-free, it’s probably worthwhile to continue freelancing on the side while you work your day job.

That way, you can use the extra money you make to knock out the rest of your loan balance. Then, when you are 100% done with debt, you can start your freelance career with more confidence.

Or, perhaps you only have a small loan balance left and you absolutely hate your day job.

In that case, it may be worth it to take the leap now and chip away at the remaining debt as a full time freelancer. It’s also not as risky going out on your own with a huge debt load since you’re likely to repay the last of it fairly quickly.

You could argue for both sides if you still carry a lot of student loan debt, too. For instance, you could hold out for your job as you freelance on the side as long as possible to maximize your cash flow to pay down debt fast.

Or, maybe you made your business plan, have an emergency account, and believe your freelance work can generate more income for you over the long-term.

In that case, it might make more sense to freelance full-time and put your time and energy into earning even more on your own.

6. What’s your backup plan?

While you don’t have to expect the worse with your freelance career, you should remain realistic. And the reality is, you could fail as a freelancer.

This has nothing to do with you per se. It’s just a business reality every freelancer has to acknowledge.

So it’s financially savvy to think through a backup plan. How will you earn money if your freelance career doesn’t get off the ground (or stay in business) the way you expected?

A backup plan to consider would be to try a different service or product. Or, look for a new target market to sell to. You can also look for another job if freelance gigs don’t work out for you.

Just remember, failure isn’t final. But, it is something to consider around your finances. Make sure you will be able to handle any setbacks — especially if you still have student loans in the mix.

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