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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.
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. 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.
- Growing My Wealth. I like to assign every dollar a job. This means that my money must work for me to grow my wealth. If I do not spend money, I have to either place it in an investment or put it where it can grow. Since my goal is to repay my student loans soon, I did not want to tie up all of my money in investments. Doing so would make me a slave to current market conditions and the worst that could happen would be a down-turn in the market when the student loan repayment resumes. Instead, I decided to place my money in a Marcus High Yield Savings Account. Find out how a Marcus High Yield Savings Account can help you reach your short term goals. If you’d like to sign up, my referral link here will give you a 0.2% APY increase on the current rate.
- 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 a Professional. 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. For those looking for an alternative option, there’s also Andrew Paulson, from Student Loan Advice backed by White Coat Investor. I haven’t yet tried his services but I am always trying to keep an eye out for good options! Once you’ve decided which path to take, determine if refinancing is something you should do.
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.