After looking at your student loan balance, you knew that you wanted to pursue jobs that offer student loan forgiveness options, like Public Service Loan Forgiveness (PSLF). The good news is with PSLF you can say goodbye to your loans after 10 years of service.
However, living on a public-sector salary can be tough so taking on a side hustle might sound intriguing. But how do side gigs affect your PSLF eligibility? Read on to learn more.
The good news about side hustling while on PSLF
Side hustling is becoming more commonplace with 21 million people doing gigs on the side, according to a survey by TSheets by QuickBooks. If you want to take on a side hustle or are already side-hustling outside of your 9 to 5, the good news is that this won’t affect your PSLF eligibility.
As long as your full-time gig qualifies for PSLF and you make the required 120 payments and serve for 10 years, you’re good.
According to the Federal Student Aid website government agencies and jobs that offer student loan forgiveness include:
- The U.S. military
- Public elementary and secondary schools
- Public universities
- Public child and family service agencies
- Specialized governmental districts, such as public transportation
For those working at a non-profit, jobs that offer student loan forgiveness must:
- Be a designated 501(c)(3) organization
- If it’s not a 501(c)(3), the main purpose of the organization must be to serve the public
What non-501(c)(3) public organizations offer qualifying student loan forgiveness jobs? For example, if you work in emergency management, at a library, or in public safety you could be eligible for PSLF.
A side hustle does not affect PLSF eligibility as the requirements for PSLF specifically apply to your full-time employment, at least 30 hours per week. So by the very nature of a side hustle — which is on the side — it does not impact your full-time gig and eligibility, which is what you really need to unlock this type of student loan forgiveness.
As long as your full-time job meets the requirements above you should be on track to get PSLF. You can talk to someone at your organization to certify your employment and submit the PSLF Employment Certification Form to FedLoan Servicing to assess your eligibility and your qualifying payments.
Side hustles and PSLF: the bad news
Having a side hustle while you pursue PSLF can give you some much-needed breathing room in your budget. While that can be good for you it may cause a snag with your income-driven repayment (IDR) plan.
Each year, you’re required to recertify your income to qualify for IDR; also, you must be on IDR to qualify for PSLF. So if you’re making more money with a side hustle, you’re required to report any income changes when you recertify.
If you’re not making a ton of money, it may not impact your monthly payments or the difference could be negligible. But if you’re making more — like an extra $500 or more each month — your side hustle income may have an impact.
Each plan on IDR has a different percentage of discretionary income that makes up your monthly payments, so do some calculations to see if your side hustle changes your income significantly.
While there’s no income cap on an income-driven repayment plan, if you can afford to pay off your student loans under the Standard Repayment Plan, which is 10 years, or even earlier, that may disqualify you from PSLF.
So let’s say your side income was significant and now the percentage of income under IDR matched what a Standard Repayment Plan payment would be or was even more. In that case, you’d pay off your loans before the 10 years of repayment for PSLF.
Aside from affecting your monthly payments, you are required to pay taxes on your side hustle income. Many side hustles are independent contractor positions which do not take out any taxes. That means you’re on the hook for paying for those taxes on your own come tax time.
How to manage the tax hit from side hustling
To help limit the impact of this, you can open a separate high-yield savings account and when you get paid transfer 25 percent of earnings to the tax savings account. You can talk to an accountant or finance professional to get a more accurate picture for your unique situation, as that is just a guideline.
If you’re making the big bucks with your side hustle:
2) You might want to pay off your student loans early, if it makes financial sense with your income and your personal goals.
That’s a rare case, but you never know (consider talking to us first)! In general, regular side hustlers can benefit from saving for taxes in a separate account. Just remember how your side income affects your monthly payments under IDR.
Lastly, and not to scare you — but PSLF is a new program and so far approximately one percent of PSLF candidates were approved for student loan forgiveness. So keep track of everything and be vigilant to maintain your eligibility.
If you have one of the student loan forgiveness jobs that qualify for PSLF, you can make money on the side and while it doesn’t affect your PSLF eligibility, it may affect your monthly payments and have tax repercussions. As long as you’re aware of that, make money and work toward student loan forgiveness!
What are some of the things you do as a side hustle? Comment below!