By Joel Chouinard, CFP®
July 12, 2023
This article was originally published in Attorney at Law Magazine
Two weeks ago, the Supreme Court struck down the Biden/Harris Student Loan Debt Relief program, delivering a blow to borrowers who hoped to have up to $20,000 of their federal student loans forgiven. In conjunction with the ruling, the student loan repayment pause established during the COVID-19 Pandemic is set to end at the beginning of September 2023 with payments restarting in October 2023. Now that we know what’s ahead, how can you as a borrower better prepare for when the payments restart?
Follow the four steps below to better prepare for the repayment start date:
- Gather the details of your loans: The first step is to log into your loan processor portal and get the details of your loan(s). This includes the current loan balance(s), the interest rate(s), and the terms of the loan(s). If the interest rate shows 0%, it is likely due to the fact that loans are still in forbearance and not accruing any interest. If that’s what you see, you may want to call your loan processor to get accurate information. You will need this information for step 3.
- Review your budget: Unless you are pursuing student loan forgiveness through various federal programs, such as the Public Service Loan Forgiveness program, you likely want to pay off your loans as quickly as possible. This will prevent paying unnecessary interest over the life of your loan. To determine how much you can repay per month without impacting your other goals, you need to establish (or revisit) your budget. My last blog post discusses in detail how to create and follow a budget, so you can check it out here.
- Use a student loan repayment calculator: After step 2, use a student loan repayment calculator to determine how long it will take to repay your student loans under that monthly payment amount. This will give you a road map of when you can expect to be student loan debt free! If you don’t like how long it will take, or the amount of interest you will pay over the life of the loan, try cutting back on some expenses to increase your monthly payment.
- Set up automatic repayment: The easiest way to repay student loans is to set up an automatic payment. Once you know how much you will be paying per month, set up an automatic payment with your loan processor, so you can set it and forget it (for now).
As an attorney, you may want to keep the following in mind after going through these steps:
- Look for refinancing opportunities: Due to current high interest rates, refinancing your student loans may not make sense right now. After all, why would you trade-in a lower interest rate for a higher one? However, at some point, interest rates might start dropping and refinancing might become attractive again.
If you plan to refinance your student loans, just be aware that: (1) you would no longer benefit from federal forgiveness or forbearance programs, such as the one established during the COVID-19 Pandemic; and (2) private student loans aren’t forgiven at death like federal student loans.
- Use bonuses to repay large lump-sums: I like using a portion of a bonus to repay large chunks of student loans because: (1) it will not impact your budget by one penny, so you can stay on track for your other goals; and (2) it can significantly reduce the repayment period and total interest paid. As I’ve discussed in a previous blog post, just make sure you keep a portion of your bonus for potential taxes due, as bonuses get a different withholding treatment than regular income.
By following these steps, you will feel more in control of your student loan repayment plan and overall financial position. This should help reduce some of the stress you may have with the payment restart date approaching.
SharpEdge Financial LLC is a registered investment adviser registered with the State of Texas. Registration does not imply a certain level of skill or training. The views and opinions expressed are as of the date of publication and are subject to change. The content of this publication is for informational or educational purposes only. This content is not intended as individualized investment advice, or as tax, accounting, or legal advice. Although we gather information from sources that we deem to be reliable, we cannot guarantee the accuracy, timeliness, or completeness of any information prepared by any unaffiliated third-party. When specific investments or types of investments are mentioned, such mention is not intended to be a recommendation or endorsement to buy or sell the specific investment. The author of this publication may hold positions in investments or types of investments mentioned. This information should not be relied upon as the sole factor in an investment-making decision. Readers are encouraged to consult with professional financial, accounting, tax, or legal advisers to address their specific needs and circumstances.
SharpEdge Financial LLC is a registered investment adviser registered with the State of Texas. Registration does not imply a certain level of skill or training. The views and opinions expressed are as of the date of publication and are subject to change. The content of this publication is for informational or educational purposes only. This content is not intended as individualized investment advice, or as tax, accounting, or legal advice. Although we gather information from sources that we deem to be reliable, we cannot guarantee the accuracy, timeliness, or completeness of any information prepared by any unaffiliated third-party. When specific investments or types of investments are mentioned, such mention is not intended to be a recommendation or endorsement to buy or sell the specific investment. The author of this publication may hold positions in investments or types of investments mentioned. This information should not be relied upon as the sole factor in an investment-making decision. Readers are encouraged to consult with professional financial, accounting, tax, or legal advisers to address their specific needs and circumstances.