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Graduating from student loan debt

October 8, 2021

Welcome to adult life — with all the financial realities. For many, one reality is the monthly sting of repaying student loan debt. We routinely help our clients’ adult children decipher the most pain-free path to loan repayment. With the right guidance and the right strategy, that looming debt can become a lot less of a burden.

Nearly 45 million Americans are currently repaying some kind of student loan. The average debt for those with an undergraduate degree is $39K. For those with graduate degrees, the average debt falls in the $100K-200K range. Total student loan debt in the U.S. is $1.7 trillion, $1.5 trillion of which is federal debt.

Philosophical and financial questions parents face

Parents must contemplate philosophical as well as financial questions when it comes to their children’s student loan debt. Maybe they have the resources to pay off some or all of their children’s debt — but should they write the check? Do they want their children to have skin in the game, and teach them a valuable lesson about being a financially responsible adult? If they do help pay down the debt, are they potentially sacrificing some of their own safety in retirement? These and other questions commonly arise.

Analyze, then strategize

We organize the process of helping young adults manage student debt into three steps:

  • First, we analyze their loans. How many do they have? How many are federal and how many are private? What are the amounts, interest rates and terms of each loan?
  • Second, we dig into their current situation and future plans. How much are they currently earning? What recurring expenses do they have? Based on their chosen field, what is their likely income trajectory? Are they planning to get married and have a family? Are there opportunities for tax-free federal loan forgiveness?
  • Third, we use our knowledge and experience to create a custom strategy for student loan debt repayment. This may involve consolidating and refinancing or, in some cases, selecting an appropriate Federal Income-Driven Repayment (IDR) plan. When IDR plans are involved, we often bring in an expert who specializes in the federal student loan system to ensure the proper filing of paperwork.

More about the Federal Income-Driven Repayment (IDR) plans

When debating between whether to keep federal student loans as federal loans or refinance them onto the private side for a more attractive interest rate, keep this in mind — only federal loans can be eligible for the IDR program. As of this writing, there are four core IDR repayment plan options. These plans allow an individual to have a high level of flexibility with how they pay off their student loans. For those whose income falls below a specific threshold, they are able to reduce their monthly loan payments to an affordable level. If they remain eligible for the program, the federal government offers tax-free loan forgiveness after 20 years (or 25 years, in some cases). When appropriate, we help young people choose between the four versions of the IDR plans, then take the right steps to qualify and set up their plans.

The great debate: federal vs. private

Both federal and private loans have their strong points. This debate comes down to individual circumstances and priorities. As mentioned above, federal loans will provide the most flexibility around your payment amounts and structure. In addition to having access to the IDR plans, federal loans also offer non-income-driven repayment options such as the graduated repayment plan or extended repayment plan. More information on these can be found at

Another advantage with the federal side is the Public Service Loan Forgiveness (PSLF) Program. With this program, an individual can receive tax-free student loan forgiveness after 120 qualifying payments (generally 10 years). To qualify, you must be employed by a U.S. federal, state, or local government or a nonprofit. This can provide a massive benefit for those with high student loan debt who choose to serve the public sector as their career path.

With the private side, the largest benefit, as previously mentioned, is the ability to attain attractive interest rates. For individuals who have appropriate income and want to tackle their debt as soon as possible, refinancing into a private loan with low rates is often the best solution. We help individuals find the right refinancing avenue and create a pay-off plan that fits their lifestyle.

One way to do it

We’ve helped many young adults reduce their monthly payment, and with it their stress level. One young woman we worked with graduated with $60k in federal student loan debt and very little income. Her monthly student loan payment would have been $600. Using a federal IDR plan, we helped her reduce her monthly payment to $180.

The $180 monthly payment only covered the interest on the loan. Our game plan allowed this client to stay out of deferment or forbearance with a low monthly payment while she got started on her career path. Once she had more income, she came off the repayment program and started to pay down principal. This strategy gave her flexibility, with no negative impact on her credit. She refinanced her federal debt with a private bank, reducing her interest rate from 6.8 percent to 2.3 percent variable, the current rate at the time.

Student loan debt can be a big drag on a young person’s finances and spirits. We’re happy to help sort through the maze of options and devise a strategy that fits each person’s unique circumstances. With all our expertise in the area, it’s a great opportunity to create peace of mind for our clients, and their children. We’re happy to help sort through all the options and devise a strategy that fits each person’s unique circumstances. With all our expertise in the area, it’s a great opportunity to create peace of mind for our clients, and their kids.

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– Information in this material is not intended to constitute legal, tax or investment advice. You should consult your legal, tax and financial advisors before making any financial decisions.
– IRS Circular 230 Disclosure: Pursuant to IRS Regulations, neither the information, nor any advice contained in this communication (including any attachments) is intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax related penalties or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.