Creating a Plan for Student Loans Repayment

student loan repayment
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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?

4 Steps to Prepare for Repayment

Follow the four steps below to better prepare for the repayment start date:

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Step No. 1: 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 three.

Step No. 2: 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.

Step No. 3: Use a student loan repayment calculator

After step two, 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.

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Step No. 4: 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).

Repayment Tips for Lawyers

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.

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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. 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.

Joel Chouinard

Joel Chouinard is the founder and lead financial advisor of SharpEdge Financial, a boutique financial planning firm serving the needs of Millennial and Gen Z attorneys. Joel is married to a former Big Law attorney, so he has a deep understanding of the goals and challenges young attorneys face as they progress through their careers. | Financial Advisor for Eagle Strategies LLC, Eagle Strategies LLC is a New York Life Company. SharpEdge Financial LLC is not owned or operated by Eagle Strategies/NYLIFE Securities or its affiliates.

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