Need Some Student Loan Advice?
Every time I look up the statistics, the average lawyer is graduating with more student loan debt and student loan defaults keep increasing. If you’ve graduated law school in the past three years, chances are high that your student loan payments are a significant cause for concern in your financial life.
I have readers write to me fairly frequently with questions about how to handle their debt. It’s no longer surprising when I come across a couple with a combined debt load of $350,000 or higher.
This makes me feel pretty lucky to have only incurred $190,000 of debt myself and, more importantly, to have paid it back and banished student loans from my life.
As if the huge loan balances weren’t enough, today’s student loan borrowers have to wade through a swamp of forgiveness programs, repayment options, student loan servicers and other headaches as they figure out how to repay their federal student loans. It’s not surprising that most college students and graduate students don’t know the interest rate, repayment terms, or other details regarding their loan repayment plan.
But that’s not you! You’ve come here to get some student loan advice and by the end of this article you’ll have a solid loan repayment plan going forward.
Step 1: Add up all your student loans (federal student loans, private student loans, credit cards, etc.)
Fear is simply your brain trying to deal with the unknown. I promise the reality is a lot less scary than you think.
If you don’t know how much you owe, you aren’t the first person to walk this path.
First, head on over to the National Student Loan Data System (i.e. the U.S. Department of Education) so you can see every federal loan outstanding. Next, you’ll need to figure out the balances on your private student loans by contacting each individual private lender.
Once you get the data from the NSLDS and your private lenders, paste all of the information in a spreadsheet along with key information like your account number. Keep it simple, but make sure there is a line for each student loan, regardless of how many different companies you have to deal with. As a graduate and college student, it’s likely that you took out a bunch of different loans and you need to see each one listed out separately so that you can keep track of it in your spreadsheet.
Although it seems simple, most people fail to take this crucial step of adding everything up and creating a spreadsheet with each individual loan. Also be sure to include details such as the loan amount, financial institution, interest rate, monthly payment and overall payment plan in the spreadsheet.
If there’s any particular loan terms that seem relevant, add those to your spreadsheet too. If you have a co-signer, any Perkins loans, previous loan consolidation or other grad debt, include it too. You’ll be referring to this document as you come up with a plan for repayment your loans. After all, managing your finances is a part-time job whether you like it or not!
Step 2: Decide which repayment plan to pursue
Every borrower only has three ways out of student loans: (1) forgiveness, (2) repayment or (3) death. Let’s put aside the third option and focus on forgiveness or repayment.
If you’re pursuing forgiveness, then you’ll probably be doing it under Public Service Loan Forgiveness or an income-driven repayment plan like IBR, PAYE or REPAYE. While you were in law school, you may have had conversations with the financial aid office about the federal student aid forgiveness programs, but now that you’re a practicing lawyer you will need to figure out how to pursue those plans.
PSLF appears to be straightforward – just work for 10 years in public interest and you’re done – but we’re finding out all of the time that it’s really more complicated.
This means that you need to pay close attention to the PSLF program to ensure that you qualify. Most importantly, you must fill out and file the PSLF Employment Certification Form each year and keep good records as you do so.
The same is true if you are pursuing forgiveness under an income-drive repayment plan. While you can’t get your payments certified each year, it’s up to you to keep records of each payment that you’ve made, so start making sure that you have a record of each payment.
This is especially important given COVID-19 and the effects we’re seeing on student loan deferment during the coronavirus pandemic. I suggest creating a new tab of your spreadsheet where you keep track of the status of your loan each month (e.g. grace period, deferment, repayment, etc.) and where you log each payment made. There should be a corresponding receipt saved to a folder on your hard drive and that folder should be part of a backup system.
Step 3: Refinance those loans!
If you’re not pursuing forgiveness and intend to repay the loans, there’s a compelling case for refinancing your federal student loans in the private market so that you can save thousands of dollars of interest.
Note: During the ongoing COVID-19 pandemic and the current freeze on student loan payments and student loan interest, I do not recommend that you refinance your federal student loans. I’d wait until repayment resumes before refinancing in the private markets.
I’ve written about student loan refinancing for several years and am still amazed at how many lawyers are willingly paying 6.8% interest when they might qualify for a rate as low as 2.25% (you can even check rates quickly without hurting your credit score “Kayak” style by using a tool like Credible ). On $100,000 of debt, the savings could be over $4,500 a year. That’s a pretty big chunk of change to leave on the table!
Most of the lawyers who aren’t refinancing cling to the idea that they want to keep the federal loan protections “just in case” something happens in the future and they need to switch to an income-driven repayment plan.
While each individual needs to weigh the pros and cons, paying an extra $4,500 a year strikes me as a pretty expensive insurance policy for keeping your federal protections. Take the lower interest rates offered by the private market and then get to work repaying your loans as quickly as possible.
Since student loans are unsecured debt, it’s not like the refinance companies can do anything if you stop paying besides trash your credit anyway. And, if you’re in a position where you can’t make payments, does your credit really matter? At that point you’ll have bigger problems than your credit report to deal with.
Step 4: Boost your debt repayment
I know this will sound strange but I made a debt repayment chain when I was paying off my loans.
I hung it up from our second floor loft so I could see it every day.
While that may sound extreme, it felt good to have a physical representation of my debt and it felt twice as good each month when I cut up certain chains and threw them away.
Sometimes a physical object is all you need to focus your attention and give yourself the confidence that you’re making progress each month.
The debt chain wasn’t some magical solution to repaying my student loans, but it did give me motivation to throw extra money toward the debt.
I cut up the last link on December 25th. I doubt I’ll ever forget that day.
Step 5: Seek student loan advice if you need it
There are a bunch of shady companies that will charge you a fee to fill out student loan repayment forms for you. You’ll know that these companies are shady because most of them look entirely shady.
However, there are a few reputable companies and financial advisors that have become experts in student loan repayment plans and optimizing strategies for repaying your student loans as soon as possible.
Given the historically poor customer service provided by student loan services, you would not be wrong to want to pay someone to either come up with a student loan repayment plan for you or review your student loan repayment strategy to confirm that you’re on the right path.
This is especially true if you’re pursuing some type of forgiveness plan, where a few hundred bucks today could ensure that you’re not making a mistake that costs you several thousand dollars later in life. On the other hand, if you’re planning on refinancing your loans and paying them off as quickly as possible, you may not need any student loan advice.
Either way, good luck and godspeed on slaying the student loan debt monster!