Student Loan Borrowers, Are You Ready for 2023?

5 Steps for Creating Your Student Loan Strategy

By Brittany Brinckerhoff

If you have federal student loans, you have undoubtedly enjoyed the past few years of zero interest + zero required payments on your loans.

You might have used this break to focus on other things – like buying a house, having a baby, saving more for retirement, or starting a small business. However, federal student loan payments and interest accrual are set to resume by mid-2023, and this could be a harsh awakening for many loan borrowers. The next few months will likely go by fast, but if you take the time now to step back and look at the big picture, you can use the remaining time of the loan pause to create a plan that allows you to tackle your debt while still pursuing other goals.

Here are five steps to create your student loan strategy:

1. Review the details of your federal student loans

   You might not have looked at your student loan statements since March of 2020, so the most important thing to do is to refresh your memory on the details of your student loans.

   Which loan servicer do you have? Do they have your current contact information? What is the interest rate on your loans, and which repayment plan(s) are you currently on? Do you know what the monthly payments might be in 2023? Were you behind on any payments prior to the pandemic? Were your payments on autopay – and if yes, is your bank account information still correct and on file?

   You likely don’t need to take any actions quite yet – just compile your information and make sure your servicer knows how to reach you.

2. Take note of your broader financial position

   In addition to understanding the details of your student loans, you should also take stock of your current financial status. Some data points to review:

   How much do you have saved up in cash? What is your overall net worth? Do you have any other debt? How much are you currently saving into your retirement accounts? On a monthly basis, are you cash-flow positive – and if yes, how much extra cash are you able to save each month?

   This allows you to get a better understanding of where you are financially and how much capacity you might have for additional savings or expenses. There are many different ways to compile this information, but the Hilltop Wealth Portal (eMoney Advisor) is an easy-to-use tool.

3. Define your financial goals

   Before you make any student loan decisions, it is critical that you also think about what other financial goals are important to you. Some of these might be shorter-term, some might be longer-term. Some examples:

   Funding a home renovation project, spending more on travel each year, buying a vacation property, starting a business, paying for college, or retiring early.

   Some of these goals might be very specific and tangible, while some of them might be more vague. Either way, it’s very likely they will change over time. This is just a starting point, so dream big! Once you’ve created a list, consider which of these are your highest priorities. 

4. Consider your overall student loan strategy

   There are two main student loan repayment strategies, so you should think about which of these two options might apply to you:

   A.    You are planning to pay off your loans in full

   B.    You are planning to have your loans forgiven (either through PSLF, one of the income-driven repayment plans, or some other career-specific forgiveness program)

   You’ll have different strategies to think about based on whether A or B makes more sense for you. And if you’re struggling to know which path is for you, you may want to talk with a student loan professional.

5. Decide where to allocate extra cash each month

   Now that you’ve thought about your current finances, your larger financial goals, AND which student loan track makes the most sense for you, you can really start strategizing. This often comes down to which student loan repayment plan you select and how you can allocate extra cash each month. Here are some ideas to review:

   A.    Is there an opportunity to get a lower interest rate by refinancing to private loans? If you have extra cash flow each month, should you put all of that towards the student loans? Can you reduce your monthly living expenses so you can put more towards the loans? Should you save less towards other goals so you can focus more on this one?

   B.    Is there a different repayment plan that might have you paying less each month? Are you able to minimize your income by saving for retirement in a way that allows you to lower your monthly loan payment? Do you need to be anticipating a high tax bill as a result of the future loan forgiveness?

   As you consider your options, you will want to keep your other high-priority financial goals in mind. Are there any actions you could take that would allow you to work towards both simultaneously?

Bonus Tip: talk with a financial planner

One thing is clear – student loan planning can easily get complicated and it’s often hard to know which strategies would work best for you. This is when it can be practical to work with a financial planner. The beauty of financial planning is that you get a holistic view of how your student loans fit into your broader financial life, which ultimately helps you find a way to balance your numerous financial goals. Our role as advisors is to provide financial advice, but also to help you crunch numbers, put all the puzzle pieces together, and consider the longer-term impact of all these moving parts – ultimately making it a lot easier to make financial decisions.

If you haven’t talked with an advisor before, now is the ideal time to start the financial planning process, and our Ascend service is a great option for student loan borrowers who want to do holistic financial planning. Contact us today for more information!

Originally posted on The Street:
https://www.thestreet.com/retirement-daily/your-money/5-steps-student-loan-strategy

This material is provided as a courtesy and for educational purposes only.  Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation. 

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