Freelancing is a great way to pay down student loan debt. What’s not so clear is how to turn freelancing into a career without breaking the bank or missing your student loans payments. Learn how to become a freelancer the right way—patiently, diligently, and well-informed.
1) Start out freelancing on the side
In a perfect world, you could quit your regular job today, start freelancing tomorrow, and have enough work to pay your bills by the end of the month. In the real world, that’s a good way to not only default on your student loans, but to invite financial hardship into your life.
Without a doubt, you need a plan to transition. If you want a full-time freelance career, you can quit your day job when:
- You’ve saved 3 to 6 months of living expenses
- You’ve built up some clientele
- You have more freelance work than you can handle on the side
It’s never easy working full-time and on the side, but people do it every day successfully, and you can, too.
2) Make sure you’re charging enough
While you may not be able to charge much when you’re first starting out, you should be able to ask for more once you’ve been freelancing for a while. When setting your price—now and in the future—consider:
- Your expenses (including how much extra you want to earn to put toward student loans)
- Target annual salary
- Your years of experience in your field
- Whether you’ll be charging by the hour or by the project
- What other freelancers in your field are charging
To learn how to find freelance work, check out our picks for top freelance job sites. They’re great places to look for work, obviously, but also to get a feel for how much you can and should be charging.
3) Use free tools to save time and money
If you’re not careful, the administrative side of freelancing can eat into your time and profits. That’s why it’s a good idea to utilize as many free tools as possible.
For instance, check out Harvest for project management, time tracking, expense tracking, and invoicing. The free version is perfect to start, allowing for one user, four clients, and two projects at a time. As your business grows, you can upgrade to unlimited clients and projects for $12 a month. Trello and Asana are other good go-to’s for project management, so research the features that each offers and see what works best for you.
And please don’t pay an expensive lawyer to draw up client contracts. You can do that yourself with Shake, an app that allows you to create, sign, and send agreements to your clients. There’s a limited free version, but as you get bigger, you can upgrade to the Pro plan for $10 a month.
4) Stay on top of your taxes
As you learn how to find freelance work and improve your work processes, hopefully the jobs will start pouring in. But as you begin to make more money, tax documentation becomes all the more important. Of all the things you need to know about how to start a freelance business, this is the part where you probably have the most to learn.
Keeping track of your income
Instead of the W-2s provided by an employer, freelancers receive 1099s for their work. However, your clients are only required to file a 1099 if they paid you $600 or more over the course of the year. That’s why it is so important that you keep track of your income. You may not receive a 1099 for the work, but you are still responsible for claiming the income and paying taxes on it. If you do not receive a 1099 from a client who paid you more than $600 over the course of the year, ask them for it.
Don’t waste money on things you can deduct. The most obvious ones are for office supplies and equipment, but don’t overlook qualifying travel, entertainment, and education. When you travel for business, entertain clients, and pay for work-related education (online or off), it’s generally tax-deductible.
Don’t forget about your home office deduction. This can be a big help, as it allows you to deduct a percentage of your mortgage or rent, and utilities. There’s just one catch: The room you use for work must only be used for work. It cannot double as anything else at any point in the day (e.g. the living room, the kitchen, the bedroom). Certainly, you can convert a room into a full-time workspace, but be sure it’s not used for anything else from that point forward.
And, as always, take the student loan interest deduction, which may be as much as $2,500.
If your net earnings from freelancing are more than $400 for the year, you are responsible for paying self-employment tax, which pays for Social Security and Medicare. Freelancers, beware: This tax can be steep. Though wage earners have taxes for Social Security and Medicare withheld from their paychecks, employers are obligated to contribute as well. When you’re self-employed, you’re responsible for it all.
Estimated tax payments
When you work as a wage earner, your employer withholds taxes for you. That’s not the case when you’re freelancing. Instead, it’s your responsibility to send in estimated tax payments every quarter. Fail to do this and you’ll likely find yourself owing more taxes at the end of the year than you can cover. If that happens, you’ll find yourself not only dealing with student loan debt, but back taxes, too.
For federal taxes, refer to Form 1040-ES. You’ll find a worksheet for figuring your estimated tax payments, due dates, and forms and addresses for mailing them in. You can also pay your estimated tax payments online through IRS Direct Pay.
Don’t forget your state taxes. Check on rules specific to your state’s estimated tax payment requirements.
5) Line up healthcare
If you do go full-time freelance, you won’t be covered under an employer’s health insurance plan anymore. Check the marketplace to explore your options.
6) Minimum payments are fine for a while
Just because you start freelancing to pay more on your student loans doesn’t mean you have to do so immediately. If you really do want a full-time freelance career—and your end-goal is quitting your regular job—consider making your minimum student loan payments while socking money away for the savings cushion you’ll need once you let your regular job go.
7) In case of emergency, consider income-driven repayment plans
Ideally, you want to stay on the standard 10-year student loan repayment plan. But let’s say you quit your regular job because your freelance work is so lucrative. Things seem fine for a while, but then take a nosedive. It may be time to throw your hat back into the full-time employment ring, or maybe it’s just growing pains of your freelance business. Either way, it may be time to consider the income-driven repayment plans available for federal student loans.
Just keep in mind that, while your monthly payment amounts may be reduced, the length of your loan will increase. Still, paying more interest in the long run is preferable to defaulting on your student loan. Just remember to start sending in larger payments once your finances get back on track.
Learning how to become a freelancer and how to start a freelance business is hard work. The key is keeping your eye on the prize, namely the financial freedom you’ll find after paying off your student loan debts.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.
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 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.30% 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 Month/Day/Year, 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 08/21/18. 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 firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 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.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
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.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.47% – 6.30%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.48% – 6.25%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|