Preparing for the Resumption of Student Loan Payments

This post may contain affiliate links. Please see my disclosure to learn more. 

I don’t pretend to know what anyone’s financial situation is like. I know that our stories are different, and depending on where we lie on our path, the story changes with time. I have already written about what one should be doing with their federal student loans at this time, but the advice is not finite. I find that the best mode of action, historically, has been to share with others what I myself am personally doing with my student loans, and letting others walk away with what they’d like to keep for themselves. So here it is. A little update on me, preparing for the resumption of student loan repayment once the 0% interest resumes at the latter part of 2021.

WHAT WE’VE BEEN UP TO

For the past year, I have been holding onto my usually aggressive student loan repayment sums for multiple reasons. Firstly, the uncertainty of the economic and social situation due to the pandemic. Mike spent 10 out of the 12 months last year not working. I honed in on only working part-time at one of my offices so as not to spread disease among different population groups. Family members lost jobs and we didn’t know who would need our support. Siblings moved back into parent’s homes, parents themselves moved, and a majority of our immediate families went without work or school for most of 2020. So I paid my minimum payment (in order to avoid forbearance just in case it affected the terms of the loan in the long-run) and took the rest of the income and invested it into a High Yield Savings Account.

Meanwhile, to compensate for Mike not working, I maxed out my 401K for the first time ever, and dabbled into a brokerage account. But for the most part, we enjoyed the relaxed vibe of staying at home and doing nothing for the most part of 2020. I wasn’t as tight on finances as I should have been. I have financial independence to thank for that – and you can read how pursuing financial independence has actually benefitted us during times of COVID.

Regardless, I am starting to feel that the end of an era is near. With the available vaccinations increasing in Southern California, I am anticipating the reopening of most of our economy, which will also signal the end of the student loan forbearance (currently scheduled for September 2020). So, like any Spring bird preparing for what’s ahead, I am gathering my resources like figments of a bird’s nest, and preparing for the return of my aggressive student loan repayments.

THE GAME PLAN

Because my loan was huge ($575,000), we initially stayed with a student loan forgiveness program instead of refinancing back in 2017, in case something unexpected came our way (oh, sayyy COIVD?). However, now that the loan amount is dwindling, we are starting to see the light. The OG plan was always to refinance once the loan reached under $300,000. Why this number? I have found that this number is the threshhold for many student loan refinancers. Many of them won’t even consider a refinance if the loan amount is more than $300,000. It is also the threshold that transitions one from a high interest rate (ours is 6.8%!!) to a lower interest rate (around 3%).

Luckily, under the REPAYE plan, the interest rate was half-subsidized by REPAYE, which meant we were able to stay in the student loan forgiveness program while paying interest fees around what we would have paid if we had refinanced. This is why it is important to understand your loan repayment options, which you can definitely learn more about here. This subsidy ends after three years, and we reached that mark during COVID (November 2020). Luckily, due to the 0% interest rate in effect right now as part of the COVID relief program, we have not jumped into the 6.8% interest rate bracket. However, our goal is to be under $300k by the time the 0% ends and refinance to an interest rate that is hopefully lower than 3%. I do not recommend refinancing your loan before the deferment period ends, but I do recommend preparing for it by planning to pay off the largest chunk you possibly can and then refinancing to a better rate to make the going easier for you in the future. Think of it as a snowball method.

OUR PREPARATION

We are doing a few things to prepare for Fall. None of these things are out of the ordinary for us. They are actions that I’ve been advocating for years. Although I must say that we’ve loosened the reigns a bit recently. Our frugal muscles have become droopy, and it’s time to exercise. Here is what I plan to do in the upcoming months.

  • Tightening up the Master Budget. Since we eliminated a majority of our spending due to the lock-down, I have found that over the past year, I have loosened significantly the reigns on spending buckets that would usually have tightly closed lids. The savings we received from cancelling subscriptions, gym memberships, and most importantly, international travel trips has given me a lot of leeway with home and lifestyle improvements. Now, it is time to tighten the purse strings once more. If you need a refresher on mastering a budget, you can refer to my free course here. Don’t let any stone go unturned. You can create monthly frugal challenges to make the saving more fun. Here’s a few of mine.
  • Resume Side Hustles. In order to protect my family and my patients, I had decided to stop my dog-sitting and my bakery last March. I also decided that it would be best to only work at one dental office at a time. But now that things are opening up again, I have started to resume my side hustles. I have returned to the bakery where I once worked as an early morning baker and have started the position of Wholesale Director in March. I love being back with the Rye Goods crew, and truly enjoy my alternative work life. I also have continued to write for this blog, as well as guest write for Bogobrush. If you wish to grow your income, too, check out my ever growing list of ways to earn extra money here.
  • Research Refinance Options. If, like us, you plan to finagle your way down to the smallest loan amount possible with the hopes to refinance for the lowest rate possible in order to snowball your way to student debt freedom, then I highly suggest starting the research on refinance options today. There will be different companies vying for your attention. It would be best if, when the time comes, you are well-versed enough to be able to refinance in a jiff. The worst possible scenario is choosing a refinance company that won’t give you the best deal, or waiting so long that you will be stuck paying the high interest fees when loan repayments resume. A few things to note. Do not apply to them if they pull your credit. You want to maintain your good credit score for when the actual time comes. Also, the smaller your debt, the better your rate. So save, save, save! Lastly, make sure you have budgeted out enough emergency funds to cover your monthly payments after exiting from your student loan forgiveness program in case of job loss or an emergency. Preparation is key before pulling the trigger. Here are a few refinance options that I’ve been recommending to colleagues.
  • Speak to Travis Hornsby from Student Loan Planner. Still don’t know what to do? Speak to Travis and his team at Student Loan Planner. They are knowledgable and give great advice. I highly recommend their services for those who do not know what to do with their loans. I send all of my closest friends and family members to him because I trust his team and know that they are up to date with the finest details regarding student loans.

I feel like a warrior getting dressed for battle. It has been a long year of nothingness. I must admit that it was lovely and nice, but I am ready to get on my horse and face the challenges of loan repayment once again. Instead of our usual yearly update (because there is nothing to update you on), I hope that this post suffices. I will write a lengthy one as September draws near, as well as after our planned refinance.

Photo by Green Chameleon on Unsplash

What To Do With Federal Student Loans Right Now

This post may contain affiliate links. Please see my disclosure to learn more.

So it has almost been a year since the news first broke out that the US government will be placing all federal student loan repayments on pause with 0% interest. I thought it was only going to last three months, to be honest. But after three (four?) extensions, I thought I should post an update on what you should be doing with your student loans. I hope you’ve been doing these things all along, but if not, that’s okay. We can pivot. Like this post, it’s better to be late than never.

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Hit other debts, hard. It’s no secret that I cannot stomach debt. Part of that is psychological, resulting from trauma regarding debt, but in general, I liken debt to a virus, leeching away at your resources while growing in size. The first thing I did after graduation, even before tackling my student loans, was tackle credit card debt. Most credit cards charge a hefty interest fee. The longer you have credit card debt, the more money you lose. I would also try to pay down any debt you have for your car. Those two are great places to start.

Continue making student loan minimum payments, if you can. I don’t like all this forbearance talk. I didn’t even like the student loan forgiveness program. I think that giving yourself lee-way with paying back debt when you have the ability to pay it makes your financial muscles weak. Even if you want to save money during this unprecedented time for “what-ifs”, I would recommend at least paying the minimum payment. Think of it as a finance work-out routine. It keeps you strong and on top of your game.

Grow your emergency fund. After making minimum payments, feel free to put your extra money in an emergency fund, for now. You want to prioritize emergency savings during this time over aggressive loan payments. With federal loans at 0% interest rates, federal student loans have stopped growing, which gives your money the opportunity to grow. Keep savings in a HYSA like Marcus. My affiliate link will give you an additional 0.20% APY for the first three months. While we wait for student loan repayment to resume, we can increase the amount to put towards it by letting our money grow on the side.

Start saving for retirement. 2020 gave us the breathing room to finally max out our 401-Ks for the first time! Each individual can contribute $19,500 towards their 401-Ks and if you are fortunate, your company will match a portion of that. Additionally, if you have the room, I would also recommend maxing out a ROTH-IRA and contribute to an HSA. These are our personal preferences, but whatever retirement account you have access to or choose to invest in, look at this time as a blessing for retirement planning. We have never had this opportunity to max out our retirement funds, but it’s a habit we will likely hold on to for the future years to come.

Do not refinance. If you have a federal loan, take advantage of the 0% interest rate that it offers. You can invest in stocks, maximize retirement accounts or simply let it grow in a HYSA. Refinancing will increase your interest rate and preclude you from taking advantage of forbearance, which would be useful in times of dire emergency, such as getting ill, let’s say.

Consult with a professional. If all of this seems too much or you feel that the advice does not apply to your particular student loan situation, I would highly recommend talking to a professional. Travis Hornsby at Student Loan Planner has saved us thousands of dollars. Their consultations are well worth the price and you will get more in return than what the consultation costs, which in my opinion is a win! I recommend only Travis and his team, because he knows more than anyone else about this stuff. Schedule your call here and let him know I sent ya using this affiliate link.

Lastly, when all seems lost, know that I am in your corner. You can always reach out to me, too.

Photo by Adeolu Eletu on Unsplash

The Real Reason Doctors Can’t Pay Down Their Student Debt

I was sitting at work once (and many times after), talking to colleagues of mine who were all in their early thirties – fairly young by doctor standards. We were talking about student loans (what else?) and how steep the price has become to get an education (in this case dental, but it applies to education in general). We were going through our numbers and they were going through their excuses as to why it was impossible in their situation to pay down debt. Of course, me being me, I gently stated the obvious which was that the real reason doctors “can’t” pay down their student debt was because they thought they deserve more than everyone else.

This statement may hurt many doctors’ feelings, but actually, it’s true.

For example. I had one person complaining about drowning in student debt. He blamed it on the kids and the fact that he is a single income household. Fine. But he also just bought a brand new Tesla SUV. He gets a nanny to watch his kids so that it’s easier on his stay-at-home wife. He gets help (did he say $100k a year??) from his in-laws that is budgeted for the kids. His dining out bill is $800 a month. But he can’t afford his student debt.

Another person also bought a brand new car after graduation, enrolled his 6-month old in Montessori private school, took wild vacations (without travel hacking!), and bought a grand house for their family of three.

Yet another person owns two medical-grade massage chairs in his home, bought his girlfriend a Tesla, and drops $10k on trips around the world.

What if I told you that this story is repeated many times over? I have spoken with my fair share of indebted graduates, especially after releasing my own personal story with ChooseFI.

They all wish to banish their student debt. They also don’t wish to do the work.

Here’s the thing I see most often with doctors. They work very diligently to get through school. They do anything to get to their dream career, including taking out a huge sum of moolah (hell, I did too).  They sacrifice the best of their young years. They put off buying a home, earning money, and settling down. Then graduation hits and they think, “I’ve made it.” For a brief second, they breathe a sigh of relief thinking it’s all going to be worth it.

So they buy a new car to celebrate. Then they buy a home or a practice. They go out every weekend for food. Sometimes they dine out a few times a week! They want to live in affluent communities. They want to go on vacation. They throw themselves a dream wedding. They buy nice clothes and expensive Figs scrubs. But more than all this are the little purchases. They want the daily coffee, the trinkets from the $5 section in Target, the happy hour events, the spin class – you know, the harmless stuff.

They become obsessed with the high-life and quite quickly, they refuse to give it up. 

And if you think I’m being extreme, I’m not.

Because when I graduated, I wanted all these things, too!

The most excruciating part about facing my student debt, the part that nearly killed me, was realizing that after every sacrifice and sleepless night, after giving up the best of my youth, after working three jobs during school, after wracking my brain on ways to extend $40 for another week, after being a model student, the good daughter, the most loyal employee, the most valuable I could be to the community – the work was still not done.

And when I tell new grads coming to me for advice on making loans disappear that they have to use their beat-up high-school ride, possibly move-in with their parents or take on a roommate, cook dinner every night, manage a budget every week, wear their same scrubs from dental school for five more years, and try their darndest to travel for FREE – well, their faces fall and I can see the disappointment plain as day scrawled on their furrowed brows.

Only thing is, I can’t tell if the disappointment lies in the fact that they have to continue living like a college kid for ten more years or if the disappointment lies in me – because I wasn’t the magic genie they wanted that would grant them their wish.

I can tell you how to repay your loans. You just might not like it.

99% of graduates with more than $350k of debt choose to stay with loan forgiveness. Probably because it hurts the human psyche too much to know that everything you’ve done thus far is not enough.

Becoming a doctor does not end the day you graduate. Not for me. It ends the day everything you need to become a doctor is behind you. Loans included.

Not everyone thinks this way, though. Many people truly believe that the hardship stops the day you get the degree. Ahhh, time to sit back and enjoy the benefits of all our hard work. But how can that be when you don’t even know what a hard-earned dollar looks like?! What makes you better than the rest of ’em?

I know I’m making enemies here but I must pose the question. If not I, who will?

I don’t blame the docs. They were merely children when they signed their lives away for a chance at the American Dream. I blame our upbringing for creating the expectation that a doctor’s life is a rich and easy one. I blame the institutions that are set in place that allow universities to charge this much money to get educated. I also blame lending companies who are handing out loans this large. Child robbery, that’s what I call it.

I implore to all the existing doctors that make it seem like being a doctor is easy. How will we ever change the trajectory if we keep implying to young ‘uns that pursuing this career path will mean they won’t have to work hard for the rest of their life. How will they realize and make an informed decision when the time comes?

I know the real truth.

That behind the facade of wealth is an increasingly long list of medical professionals patiently waiting 25 years for loan forgiveness to hit. Behind every confident thrust of the credit card is an avoidance technique that makes life a bit easier to live. Behind all our heroics and saving lives lies a coward afraid to face our social responsibility to pay back debt that we chose to take out. And behind every accomplishment lies a lifestyle creep that is avalanching too fast out of our reach, propelling doctors further forward towards an unsustainable way of living.

The real reason doctors “can’t” pay back student debt is because they won’t.

They choose not to work hard anymore. It isn’t burn-out, although that stuff is real too. It’s the social expectation that a doctor’s life is breezy. The mindset to pay back debt just isn’t there. Many cannot accept that graduation is not the end-game. They think they already won.

There will be excuses. I don’t buy any of it.

There will come a day when I will finish my loan repayment journey, and people will think it’s a miracle. They’ll think I was one of the lucky ones, rather than a penny-pinching maniac. Perhaps the stars aligned and the pandemic gave me this “unique” ability to pay back loans faster because I was not being charged interest for six months. My parents must have helped me out. An investment strategy probably worked out for me but not them. I can’t wait to see the excuses they make. But none of that will be true.

My current car is a high-school ride that I’ve had for 13 years. The passenger’s rear-view mirror doesn’t match, because when someone broke it (probably to re-sell it), I didn’t want to pay an extra $60 to get one that was white when the stock color was black. Mike even helped me put it on the car myself because I didn’t want to pay a service fee at the auto shop. My neighbor came out of his garage this past week and looked at me funny when he saw me physically hand-washing my car. He said, “That’s … nice…” and walked away slowly.

I sometimes have to wipe graffiti off my windows, because I chose to live in a lower income neighborhood so that I could buy a business storefront AND a dwelling at a very low price. Last Friday night, it was getting ratchet at the club next door since they moved the party outdoors due to COVID restrictions. I’ve had to run away from my own home before when the riots first started and they fired fireworks at the cops.

I spent a third of last year working midnight shifts. I still wear my USC scrubs that I was forced to buy upon entering dental school in 2012. I run with the Nike’s that my husband bought me as a gift when I was attending dental school so that I could “be cool”. They used to be orange but now they’re mostly black. I sell my de-cluttered stuff on Poshmark. I research heavily in order to travel the world for FREE. I come home from work to work. I still actively budget every week. I aim to spend only $200 a month in groceries for the two of us and $150 a month in dining out. I created a lifestyle where my job is three blocks away, to reduce the gas I have to buy. TO REDUCE THE GAS I HAVE TO BUY. I spent my last birthday repainting our bathroom. We spent Mike’s birthday picking up birthday freebies. Heck, even our cat was free.

Do you know the real reason THIS doctor can pay off student debt?

Hard work and a willingness to.

It’s not rocket science.

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Finance: The Third Year of Paying Down $575,000 in Student Loans, An Update

Every May, I post an update on how we are doing with our path to financial independence, which largely depends on our student loan repayment plan. If you haven’t already heard the story,  I graduated at the age of 26 years old (turned 27 a few weeks after graduation) with more than half a million dollars in debt. A weight that was too heavy to bear, I decided to shun the common notion of waiting 25-30 years for loan forgiveness and instead to get rid of the debt as fast as I can.

Three years of aggressively tackling my loans is coming to an end, and what a journey it has been! You can read about my first two years here and here. As every year before, I will summarize what we have accomplished financially since last May, and how we plan to move forward and snowball our way down to being $0 in debt.

A Summary of Accomplishments for Year 3

This past year, there have been numerous accomplishments that I am very proud to share. It has been a year of experimentation and discovery for us both. But also, a year of triumphs over a few financial hurdles. Here is what we’ve done.

  • I opened a bakery and managed my own small business with one employee for an entire year. One of my life goals was to pursue my hobbies and possibly make them into mini-side-hustles. Other jobs that I had last year on top of dentistry was this blog space and dog-sitting via ROVER. After a year of baking for local restaurants, coffee shops, and markets, I closed my bakery two weeks before the COVID-19 pandemic took place.
  • My husband wanted to switch careers. He has been interested in coding for some time and he decided to take a coding boot camp in order to be able to do systems analytics for large data sets. We enrolled him in a program which started January 2020 and paid for the schooling in FULL (it cost $8k) without reducing the amount we put towards student loans. We took the money from our “emergency fund” and built it back up over the course of 3 months. In February of 2020, when the company he was working at was doing lay offs, he requested to be considered for it due to a nice severance package for two months which ended on April 7, 2020.
  • COVID-19 epidemic happened which ended up helping us financially. My husband, whose severance ended in April, then applied for EDD and instead of getting very little money during this period of professional transition, he gets paid $4200 a month from the government.
  • As a dentist during COVID-19, I was in a precarious position. I split my time between two dental offices and was working 6 days a week prior to March 15. However, the government decided that dental treatment should be limited strictly to emergencies, thus causing one of my offices to shut down for the time-being. Luckily, the other office located 3 blocks from my house stayed open and I was able to work 3-4 days a week due to a particular patient pool. A 3-mile radius around our office houses over 330,000 residents who are mostly within a lower social-economic status. They usually do not have time to worry about preventative dental care and go to the dental office only when something hurts. Thus, emergencies ran amok. Additionally, 80% of the patients I see have Medical. Therefore, Medical covered all root canals and extractions at 100%, and everyone who came in with a medical emergency pretty much had a free pass at getting the treatment started on that day. Since most other dental offices were closed, patients from 30 miles away were driving to see us, too. If it were any other dental office, I would have been sitting at home like all my other colleagues but due to sheer luck, this actually kept us afloat.
  • COVID-19 helped us even further by reducing the interest rate on student loans to 0% until the end of September. This is a dream for all graduates paying off student debt, especially if they are paying it off aggressively. With the uncertainty that came in March, we paused student loan repayment and kept all our incomes liquid. However, now that we realize that the stipend from EDD for Mike and my work situation puts us at a stable financial position, we have enough set aside for student loans to bring us in the $300,000s ($375k to be exact)! Which is CRAZY! That means that in three years, we were able to go from $575k to $375k at a 6.8% interest rate. So now, we are tossing and turning the option of partially withholding some of that loan repayment money and putting it into buying a second property that we can use as a rental unit – thus increasing passive income. We are still up in the air about whether to experiment with real estate or focus on paying down loans. Perhaps we get both?
  • This past weekend, we finished off my husband’s car payment, a loan that lasted five years. My husband has owned three cars and three motorcycles. Five years ago, he was convinced by the dealer that he should take out a car loan to improve his credit. His other motor vehicles were always bought in full and in cash. The dealer recommended a car loan to improve his chances of being able to get a house mortgage in the future. Since Mike has no history of accruing debt, opening his first credit card AFTER graduating from college, he technically had “bad credit”. Mike signed up for a car loan and while I agree it improved his credit tremendously, I also get weak in the knees thinking about all the money we lost on interest. It’s a screwy system. But now it’s all over, which adds that monthly $585 car payment towards liquid assets which we can put into our loans or a rental unit.
  • Speaking of mortgages, we are finishing up our home refinance, which if successful would reduce our monthly payments by $500 a month. Add this to the savings from the finished car payments, and that’s an extra $1k to put towards snowballing our path to FI.
  • Lastly, we made a few adjustments including switching our car insurance and our homeowner’s insurance to a different company so that we can shave off an extra $100 per month. Now that Mike is at home working on his course, we have saved money on dining out since someone is always home making meals. Also, without the bakery, I have less stress and can focus on improving our finances and other aspects of our personal life.

How to Continue Snowballing

There are many ways in which we are snowballing the loan repayment so that we gain momentum and speed as time progresses. An example of this is the car being fully paid off, which then adds an additional monthly $585 towards our repayment plan. We had created many ideas along the way on how to make our repayment system better. Here are a few ways.

  • The Repaye program pays 50% of interest for the first three years of the program. By switching to REPAYE within the first year of repayment, we have saved thousands of dollars on interest. The final year of REPAYE is this coming year. We hope to reach mid to low $300k by the time it ends.
  • After the 50% perk of REPAYE ends, we hope to be at a low enough dollar amount to refinance the entire student debt. If we can refinance at 3% instead of the 6.8%, that would speed up our progress tremendously. Also, as the principal amount decreases, more of our repayments go towards the principal itself.
  • We are debating about purchasing a second property as a rental unit. If we do, we are searching for one that would at least cover the mortgage and it would be swell if we could find one that can actually rake in a bit more than the mortgage per month. This builds equity under our name and sets us up for passive income in the future in case we pursue early retirement. As we get closer to the end of the student loans, we always have the option of selling it (assuming it accrues value) towards the end of repayment to get a chunk of liquid assets and put it into the loans. Of course, the latter option is less financially savvy.
  • Currently, with me working and Mike unemployed, we can still afford our monthly $6.5k student loan payment and our living expenses. My hope is that Mike will get a job after the coding program that he enjoys and we can funnel 100% of the additional income into loans.
  • Currently, we are renting the bottom floor of our loft to my brother’s girlfriend for a very cheap rate to help her out. My brother is currently in Arizona starting his second year of dental school in the Fall. There has been discussion about them moving in together in a year or so. Of course, we would love for her to stay with us forever and ever but if she does choose to move to Arizona, we can definitely rent the bottom space closer to market value. Since our live-work-loft is commercially zoned and faces a downtown area, we can rent the bottom space to either a business or a resident. Our options are widened by the fact that it can act as an office space or a storefront.

When we first started our student loan repayment journey, we thought it’d be great to pay it back in less than 10 years. The first plan we made put us at 9.8 years. We made such good headway the first year but it wasn’t until Travis Hornsby from Student Loan Planner tipped us off on switching our repayment plans in order to save more money that our trajectory put as at paying back the debt in 7 years. With COVID-19’s help, I did the calculations at the current rate, I can repay it in 3.5 more years. But assuming Mike gets a job soon after his coding camp ends in June, I think we can actually finish this in only 2.5 more years.

And to think that people almost convinced us not to do it. They said life would be very difficult for us personally and financially. Yet we are the only couple we know who are calling the shots at work, creating our own schedules, switching professions if we wanted to, pursuing hobbies as options to replace work, traveling the world freely, and living a relatively stress-free life. Choosing the harder path, the road less traveled, really set us up for a different life.

Which is to say that sometimes, it pays off to follow your gut. Reach for your dreams. Look at more than just numbers. Surround yourself with like-minded people, cut out societal expectations, go rogue and run like vagabonds toward the nearest exit signs. Be afraid and do it anyway. Live life to the fullest, you’ll have no regrets.

Here’s to Year #4! Cheers!

Tips for New Grads with Large Student Debt

  • Get a consultation with Travis Hornsby of Student Loan Planner. I know it costs money and it feels difficult to pay more money when your goals are to save and pay back debt. But you don’t know what you don’t know and Travis is well-versed in student loan repayment options. Even when we were already aggressively tackling our student debt and working with an amazing financial planner whose wife was a dentist herself, Travis still taught us a few things we didn’t know. He saved us about $10,000 by simply placing us in a different repayment plan!
  • Run the numbers. This may be hard without someone’s help, but you’ve really got to run every possible repayment scenario to see which one saves you the most money. Of course, in the end, you may choose the one that affords you the lifestyle you want. In our case, we chose the one that does both. By choosing to aggressively pay back debt, we are saving more than $100,000 than if we just waited for forgiveness 25-30 years later. We also are freeing ourselves us 15-25 years sooner than our peers, which is a huge psychological benefit. Notice that I said we chose the one that saves us the most money. Travis will argue that we didn’t choose the one that would make us the most money. Which is true considering you can invest over 25 years of working. But I guarantee you we chose what was right for us.
  • Figure out your priorities in life. The best thing our financial planner did when we started talking about our finances was to spend a few sessions in the beginning asking us the hard questions to try to figure out what exactly we wanted. It was like marriage counseling for money. The top few items we had were to spend time with family, travel the world, and have the freedom to pursue our interests and hobbies. Freedom and independence dominated the conversation, and it was because of this that we decided aggressive repayment was the way to go.
  • Master a budget. You have to start somewhere. Mastering the budget is where you have to start. You can always increase your income, but if you never learn to curb your spending then there is no point. I made this course FREE on my blog to help as many people out. We use YNAB to manage our budget.
  • Surround yourself with a community of like-minded people. There is that saying that you are as good as the 5 people you surround yourself with. I choose to surround myself with finance resources. My favorite finance podcast is ChooseFI, but there is also Afford Anything and FIRE drill. My favorite book is Your Money or Your Life  by Vicki Robinson but other goodies are The Simple Path to Wealth and Goodbye Things. And then, of course, there are blogs, including Mr. Money Mustache, Mad Fientist, JL Collins, and The Frugalwoods.

Student Debt: How to Lower the Interest Rate Without Refinancing Out of The Loan Forgiveness Program

This post may contain affiliate links. Please see my disclosure to learn more.

Almost a year ago, I wrote about refinancing and leaving IBR for good. We hadn’t refinanced up to that point because we were not sure if we had the frugal muscles and the mental and emotional strength to tackle my student debt, and we knew that refinancing would mean that we could never run back to the Loan Forgiveness Program if we ever hit a rough spot. Once you refinance, you are no longer eligible for the Loan Forgiveness Program. A pro of the Loan Forgiveness Program is the flexibility to revert back to a minimal payment of a small percentage of your income when times are tough. Meanwhile, you also having the choice to pay back the debt aggressively if you are able. If you refinance, well, it’s either you make those whopping payments (which in our case is $6,500 per month) or end up in mad doo-doo if you fail to do so.

After a year of paying back debt aggressively, it was obvious that we were BOTH in it for the long haul! We were ready and capable of getting these loans out of the way. So we said, “SCREW IBR, let’s refinance!” The worst part about IBR is the high interest percent rate of 6.8%, which meant that about half of our monthly payments were going towards interest alone! YUCK. This is the main reason why we wanted out.

We were very serious about the whole thing and even started researching refinance options. The list of lenders that we found included the following:

We got quotes from every lender and were about to pull the trigger, but we didn’t.

Why? By some stroke of luck, we went down the rabbit hole of purchasing our first property and held off on the refinancing of the loans until that was secured. However, once we had settled into our new home, Mr. Debtist’s start-up company went through some tough times and Mr. Debtist’s salary went down by 50%! At the time, this seemed like terrible news, but we were actually lucky in that we hadn’t refinanced yet and life had the opportunity to teach us a lesson: that maybe the flexibility of Loan Forgiveness Program was essential. With a loan this large, the flexibility of the Loan Forgiveness Program makes our journey much more comfortable! Shortly thereafter, I had my third stroke of luck. I spoke with Travis Hornsby of Student Loan Planner. If you have not already interviewed with him and you have a lot of student debt, I would just like to say that although his calls are pricey, they are WORTH it! You’ll soon see why!

In this interview, Travis informed me of a way to improve our aggressive loan repayment strategy. I learned that by being in IBR, we were missing out on an opportunity that another loan forgiveness program offered. Which is why it is important to know the differences between IBR, PAYE, and REPAYE! We learned that REPAYE helps our significantly by covering 50% of our interest every month! Just by switching to REPAYE, we were able to save over $7k in 8 months (find out here).

Since REPAYE covers 50% of  the interest, it is as if we refinanced to get a better interest rate. The interest that we have still yet to cover with our payments come out to be about 3.4% of the loans. I like to think of this as a way to get a lower interest rate while still keeping the flexibility of loan forgiveness. Even though Mr. Debtist’s job situation has  stabilized, we still never know what life may throw our way. Being able to fall back on those small payments give us a lot of peace of mind. Meanwhile, we are able to funnel even more money towards paying down principal!  It’s the best of both worlds.

I think that Travis saved us from making a decision that could put us in a bind during tough times, and he also helped facilitate our loan repayment journey. This is why I think it is so important to talk to someone who can really guide you find the most optimal path for your loan repayment journey, especially when you are talking about student loans this big. If you’ve been thinking about talking to someone but are not sure if it will even help, I bet you Travis is your guy. Schedule your consult with Student Loan Planner if you are feeling lost or simply looking for loan repayment alternatives.

In short, my advice is this. If your student debt is less than two times your salary, then maybe refinancing is a doable option. It won’t be easy, but it would be doable. However, tread with care. If your debt is more than two times your salary, highly consider sticking with Loan Forgiveness, even if you have plans to attack it aggressively. Only because life is a mess and would take any chance it has to throw you a curve ball. Ultimately, I truly believe that everyone can find a path that is in line with their lifestyle and life goals.

When we started, we were told that paying down our loans in ten years with our salaries was impossible. But deep down, I knew that we could do it and that it would be the best path for us. So we set a plan to pay it down in 9 years. Before we talked to Travis, I was hoping to escalate the plan even more and pay it back in less than 9 years. After we made the change to REPAYE, I now have hopes to get rid of it all in 7 years or less. We are implementing a number of side hustles and budgeting tactics that are speeding up progress! I can’t wait to see how much more we could do. Thanks for being here, supporting our journey, and following along. 

 

Finance: How We Paid Off $145K in Student Debt in Two Years

On the heels of the previous post, a word on how we paid off $145k in Student Debt the past two years. I think it’s one thing to inspire people to pursue a road less traveled with the hopes of reaching a more ideal life, but it’s another thing to give any meaningful sort of advice on the matter. It is the latter that I wish to address in this post.

I’d be the first to admit that tackling half a million dollars in student debt is a daunting task. However, with a few pointers under your belt, the task becomes much easier. Here are some steps that we took ourselves, listed in the order we took them.

Steps to Paying Down Debt

  1. Figure Out Your Why. The pillar to every debt pay-off story is the “Why”. Why are you pursuing financial freedom? How does paying off the debt lead you to a life you want to lead? What will keep you going? These are the questions you must first answer. You need to build that fire within you, the one that burns so achingly that you’ll never forget, turn around, or give up on the reasoning behind why you decided to take that first step.
  2. Hire a Professional. While not for everybody, I highly recommend this if you are like us and do not come from a lifestyle geared towards financial independence. As you can see from my money egg, I had a long history with money that makes me hyper-aware of excess consumption. Each person has their history with money and it shapes the way you view your finances. I knew when I graduated from dental school that I did not come from a place of wealth, and neither do I have experience with dealing with large sums of money. I also did not want to be the person dealing with a looming debt hanging over my should. I had to talk to someone, and fast! While colleagues were buying homes and cars with their first paychecks, the first thing I paid for was a financial planner. And it changed our lives! If you are swimming in a large amount of student debt like I am, then I would highly recommend a conversation with Travis Hornsby from Student Loan Planner (affiliate link). He helped us save thousands of dollars on our journey, and as you can tell from our Itunes interview (here) he has no problem telling you how to optimize your repayment journey … which is exactly the type of person you would need in order to get great feedback! He broke down why we could optimize our path better (from a financial standpoint) by waiting 25 years and investing our money instead, but I chose to follow what I felt was right, and pay it back aggressively instead. The good thing is, you can discuss options and a good professional will make sure that you are aware of all the ways you can tackle the debt, but in the end, you are the decider about what to do.
  3. Educate Yourself. Admittedly, we did this with a financial planner holding our hands. We learned about budgeting strategies, loan repayment options, ways to optimize our health insurance, options with our retirement funds, and more. Off course, you don’t need a financial planner. There are plenty of books, sources and inspiration out there. The more you get educated on personal finance, the more options you will have. As you learn new ways to battle the same thing, you will become more innovative in your solutions, and doors which you never knew existed will open. Knowledge will only facilitate the process.
  4. Get Budgeting Down. It’s difficult to direct money towards paying down debt when you are always scrounging for money in order to live. Living paycheck to paycheck would indicate that there is nothing left-over to funnel towards your goals (student loans included). Creating a budget and sticking to it will help. Start with my course on creating a budgeting tool, and go from there!
  5. Manage All Other Debts. The last thing you want to do is to focus on student debt so much that you ignore all other debts, or worse, accrue an even larger number of debts! For us, managing all other debts meant paying down higher interest debts such as credit cards. We paid these off within the first month of marriage. However, for those with lower interest rates than my student loans (that is, lower than 6.8%), we paid only the minimum payments. For example, Mike’s car loan has a lower interest rate AND a lower total amount. Therefore, the money would be of better use towards my student debt, rather than eliminating the car loan.
  6. Get a Good Job. Let’s face it, a good job will largely affect how well you can pay off your loans. A job that’s consistent, reliable, and pays well. As much as I would love to explore being a temp, I also know that working more days as a dentist will help us on our repayment path. So there must be a balance. I can’t just cut down dentistry to one day a week and then pursue all my other creative endeavors. And if you’ve got a large debt, unfortunately, it wouldn’t behoove you either.
  7. Consider Side Hustles. Once our spending habits were controlled with a good budgeting tool, I started to think of ways to increase income. Actually, I started to explore hobbies that I like to do, and found ways to use that to make extra money. I started side hustles at the beginning of 2019, and the returns have been increasing steadily. I cannot wait to see where this year of side-hustles will take me.
  8. Be Kind to Yourself Along the Way. Lastly, but most importantly, find ways to make this lifestyle sustainable. The importance of enjoying life, rewarding yourself for your hard work, and having grace cannot be stressed enough. If everything in your journey is harsh, then it will be difficult to continue on when the days get rough. Because they do. I can recognize when I feel bogged down by the weight, tired by the work. When I do, I schedule a day of rest, or force myself outdoors, or meditate to reset. I send all my focus towards taking care of me, and in doing so, the loans find a way to take care of themselves. Ways in which we make this journey more sustainable include finding creative joys – I dabble a lot in the arts, Mike dabbles in music, and we both fulfill recreational activities in the form of travel, hiking, board games, and get-togethers with friends and family. In the end, you have to do whatever it takes to feed the fire.