It’s no secret that going to law school is expensive. Law degrees, like other forms of higher education, are getting more expensive each year. (1) In fact, the average cost of tuition alone is over $45,000 per year. (2) And that’s on top of the cost of an undergraduate degree. This means most attorneys are saddled with an average of $130,000 in student loan debt by the time they pass the bar. (3)
Paying back your loans can take decades, especially when other financial goals, like buying a home, building a practice, and raising a family, take precedence. These past two years we’ve seen a slight reprieve thanks to the national student loan pause, but with that program set to expire on January 31, 2022, it’s more important than ever to get a handle on your student loans.
If you’re like many of our clients, you may be nearing retirement with a significant portion of your loans still left unpaid. If that sounds like you, consider these five tips to help reduce your student loan debt and plan for retirement with confidence.
- Consolidate Your Loans
If you have multiple federal loans, consider consolidation. Under the Direct Loan Consolidation Program, you can combine all of your loans into one, usually with a smaller monthly payment, which can free up more money for retirement and other financial goals.
This is a good option if you are looking to make your debt less confusing and more manageable. Remember that consolidation through the Department of Education is free, but the term of your loan will start over at a new interest rate.
- Apply for Income-Driven Repayment
Another way to make your student loan debt more manageable is to apply for an income-driven repayment plan (IDR). These plans are only available for federal loans. They reduce your monthly payment to a percentage of discretionary income and extend the time frame for repayment from 10 years to a maximum of 25 years.
The best part about IDR is that any amount left on your loan at the end of the term is forgiven. This option can be especially helpful if you are a younger attorney, or if you specialize in an area of law that pays a lower salary.
- Make Additional Payments
Making additional payments on your student loans is the most straightforward way to pay down the debt quicker. This option is great if you have extra money to spare. Depending on how much more you can afford each month, you can save thousands of dollars on interest and potentially pay off the loan early.
If you do choose to make additional payments, though, be sure to check the fine print with your loan servicer. Ideally, each additional payment should go directly toward the loan’s principal, but some servicers will consider additional payments as a prepayment of next month’s bill. This means you will still be paying interest and you will not pay off the total loan any faster.
- Refinance to a Lower Interest Rate
Much like when homeowners refinance mortgages to get better interest rates and lower monthly payments, student loan borrowers should also consider refinancing their accounts. I say “consider” here because there are several caveats to that statement.
First, refinancing loans will come with a fee (like refinancing a mortgage), and second, refinancing is typically done through a private loan company. This can result in the loss of many federal benefits, including fixed interest rates and the option for IDR plans. Take care to thoroughly review any potential cost savings in the context of your overall financial plan.
Another option that’s similar to refinancing is to pay your loans off using a home equity loan. This effectively converts your student loans into a mortgage. Home equity loans usually offer lower interest rates than student loans, so this can be an appealing option if you are looking to avoid or minimize interest.
- Pursue Student Loan Forgiveness
Another option to consider is federal student loan forgiveness specifically for attorneys, which includes:
- Public Service Loan Forgiveness Program: Forgives federal student loans after 10 years of payments if you work for a nonprofit or other qualified organization.
- Department of Justice Attorney Student Loan Repayment Program: Provides incremental student loan forgiveness in return for a three-year employment contract with the Department of Justice.
- John R. Justice Student Loan Repayment Program: Provides student loan assistance for attorneys working as public defenders.
Depending on your career goals, salary needs, and financial objectives, these options may not be applicable to your situation. They are worth exploring if you have a large amount of student loan debt that you struggle to pay off through the other suggestions above. This tip is more for young attorneys who are just starting out and may be better able to afford the salary restrictions that come with working in the public service sector.
Get Started Today
Paying off student loans can be overwhelming, but there are ways to maximize your repayment and minimize your stress. At Wurz Financial Services, we will analyze your current financial position to determine which strategies align best with your long-term goals. Schedule a no-obligation consultation, and together let’s find out if we’re the right people for you to depend upon during your journey toward a retirement free of student loans. Contact us at 859-291-9879 or firstname.lastname@example.org today!
And don’t forget to join us at one of our free webinars:
- Social Security 101: The 3 Rules to Maximize Your Lifetime Retirement Benefits!
- Will I Have Enough to Retire?
- Retirement Planning Strategies for Solo & Small Firm Attorneys
Darren Wurz is a co-owner and financial planner at Wurz Financial Services, an independent, family-owned and operated financial services firm dedicated to helping its clients transition from their working life to a comfortable retirement with confidence. Darren received his Master of Science in financial planning from Golden Gate University and also holds the CERTIFIED FINANCIAL PLANNER™ designation. He operates the Northern Kentucky/Cincinnati office of Wurz Financial Services and is an active member of the Northern Kentucky Bar Association, the Northern Kentucky Chamber of Commerce, and the Covington Business Council. To learn more about Darren, connect with him on LinkedIn.