by Kristen Euretig, CFP® Founder & Chief Planner
|We’re still talking student loans over here as loans enter repayment again next month after a 3.5 year freeze and our clients have questions. Should I just repay the whole thing now / as fast as I can? Should I refinance? How much is my payment going to be? The answer to these questions, perhaps maddeningly for our clients, so often, is “it depends.” Let’s take a look at some common questions we’re getting and how I think about it as the Chief Planning Officer. And check out the Event Alert below to register for our free student loans town hall next month open to the public.|
1. Should I just pay this loan off now / pay it off as fast as I can?
So this has been a question I’ve gotten in regards to student loans dating way back to even before the payment pause and here’s how I think about it: More often than not my answer is no, I do not advise people pay it in full. The reason being that our clients are women, couples and allies who have lots of goals that they are typically still in process of achieving: starting a business, saving for college for a kid, buying a first or second home to name a few. So, the savings our clients have now and can build up to achieve these goals is a precious resource. If our clients have other mid-term goals that will require funding, we generally prioritize those over student loan repayment because interest rates tend to be reasonable and payment terms are flexible.
2. Should I refinance?
Again, my answer to this question is generally no. The private student loan market lacks the repayment flexibility the U.S. government provides. Even though you may be able to secure a lower interest rate (harder in the current economic environment than it was before), you don’t benefit from things like a 3.5 year payment pause with 0 interest accrual when there’s an economic downturn. I’m also optimistic about the political momentum to improve student loan payment affordability because of a new payment plan that’s already been announced as well as the direction things are generally going politically to spotlight the difficulties Americans face with student loan repayment, and the proposed solutions being announced.
3. So, what should I do then?
My advice is to get prepared for repayment and see how it goes. You don’t need to make a decision right now. The student loan system is transitioning as we speak to be more transparent, more manageable and more fair. I’m encouraged by these developments. There’s no need to make a split decision because you need to start paying on it again. First, understand your payment options and get on the payment plan that’s right for you. See how it fits into your monthly expenses and I’d suggest reevaluating in the New Year.