👩🎓Navigating Student Loans👩🎓
How to manage the return of upcoming payments
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The State of Student Loans
Students loans are back on the table. For the past three years, the U.S. has hit pause on student loan interest and payments due to the pandemic. With the passing of the government’s deal to raise the debt ceiling, politicians cemented repayment for millions of Americans across their student loans.
1-in-4 Americans are not prepared to repay their student loans
With this national pay date coming for us borrowers, let’s take a look at a few key money strategies to handle the situation.
1) The Supreme Court Decision
Near the end of this month, the Supreme Court will decide on the fate of President Biden’s debt forgiveness proposal. To brush your memory, his proposal included up to $20,000 forgiveness depending on your situation. Some U.S. states said the President overstepped on his power here by providing blanket forgiveness and sued, tying up the decision in our court system.
My main strategy to handle my student loan debt is waiting until the decision comes down from the highest court in the land. I’m skeptical to pay off loans that could be potentially (if seeming unlikely at this point) be forgiven. I’m waiting for a hero out here.
2) Scheming in the Background
Over the past two years, I’ve prepared for the worst with my loans. I have been saving up and allocating a percentage of my paycheck to hypothetical student loans, knowing I’d have to repay eventually.
I can happily say that the Supreme Court decision doesn’t impact my ability to pay off my student loans and I will be able to pay off my loans in full come August. If the Supreme Court rules in favor of loan forgiveness, I see this as a win that will jumpstart my timeline for purchasing a house with my wife.
If you haven’t been saving your pennies here, my suggestion is to start now. Create an additional savings account for the upcoming loans and prepare for the worst.
3) Debt Avalanche the Mountain of Loans
Here at Finessing Finance, we don't take the way of the debt snowball. For a refresh, the debt snowball repayment method is where you list all your debt and pay off the account with the smallest total.
While this method is great for feeling good about paying off your loans, the debt avalanche is the way to go.
With a debt avalanche, you make the minimum payment on each debt, then use any remaining available funds to pay the debt with the highest interest rates. - Investopedia
There’s a key word in the above definition. It’s all about interest rates! Be sure to pay off the loan with the highest interest rate. This method is mathematically proven to boost your potential lifetime net worth when compared to the debt snowball. And don’t get me wrong here, both debt repayment systems are great if your dream is repaying your debt. I’m an overachiever and want to think long-term beyond this debt.
Ask yourself, are you a snowball or are you an avalanche?
Lastly, a few tips from the headlines:
Many loan providers have cut customer service
Sort out your loans sooner than later. Phone lines will be stretched come August
Pay off anything over 4% interest as soon as you can
Sign up for different repayment plans. For some homework, lookup REPAYE, PAYE, IBR, and ICR.
Never pay JUST the minimum. Go above and beyond, attacking your debt as much as you comfortably can!
Happy shredding,
Jordan 🏂