Student Loan Repayment Restart
Economic Perspective –

There is $1.8 Trillion of outstanding student loan debt of which most payments begin again for borrowers this month. The average monthly payment for borrowers is $200 – $300 per month, which equates to around 5% of the U.S median annual salary. Based on these numbers at the household level Wells Fargo analysts believe that the restart will be “a relatively contained headwind” for the U.S. economy.
Personal Finance Perspective –
When economists are looking at the big numbers, in aggregate, student loan repayment restart does not look so bad. When you get down to the individual level, $200 – $300 per month can mean the difference between saving money or being “in the red” …meaning spending more than your take home pay. We all pick and choose how we spend our money. Some people spend upwards of $100 a month at Starbucks. Other people might spend extra at the gym that has the “nice towels” as a form of self-care while they sweat. Some of us just want to keep watching commercial-free streaming services. Whatever choices people make as to where they spend their hard-earned money, student loans are back and there are ways to pay them off and pay them down without ruining all our fun. Here are a few ideas on how to not let your loan payments get you down:
- Company benefits – See if your company offers any student loan payment relief, as this has become an increasingly popular benefit. If your company does not offer this benefit, share this list with them of 20 companies that do.
- Ask for a raise – Talk with your boss and let them know that your loan payments are restarting and that it is creating financial stress. Employment is still tight and giving you a raise will most likely be less expensive than hiring and training your replacement.
- Consider loan consolidation – More and more borrowers are managing their budgets better by extending the terms of the loans or using an Income Driven Repayment plan. Both options can take some of the burden off your monthly budget. Please note, you want to take the time to fully understand the impact of whichever option you choose.
- Refinance your loans – This is different from consolidating loans. If you have Federal Loans, you are often better off staying in the Federal System. That is where you could potentially qualify for forgiveness programs and potentially take advantage of new payment plans like the newly introduced SAVE plan. If your loans are already through a bank and therefore not Federal loans, it is worth looking at refinancing. There can be bonus offers, lower rates or longer terms that might make it attractive to lower your monthly bills. Whenever you refinance any debt, it is critical to weigh the pros and cons. You may get a lower payment now, but a higher number of payments to pay off the loan completely.
- Budget – Knowing how much you should or should not spend on discretionary items is important! I realize that sticking to a budget is not as fun as getting a raise would be, but having a sense of what money is coming in and what money is going out each month is critical to long term financial success. Plus, you might not get the raise, and living within a budget is completely in your control. Regardless of how much money you make, in most cases, you could find a way to outspend your income.
- Prioritize your spending – Some expenses are “essential” – rent/mortgage, electricity, food. Other expenses are discretionary like Starbucks, streaming services, going out to dinner or a show. The goal here is not to encourage you to become a hermit, but rather to be more intentional about hitting a goal like traveling to Rome, Nashville, or Bali. It is simple to overlook details when purchasing everyday items or splurging on an impulse buy. It is when these behaviors become the rule versus the exception when it can hinder your ability to achieve bucket list types of goals or saving a bit extra for a downpayment, paying down student loans or saving a bit more toward retirement.
- Aggressively pay off your loans – If you have multiple loans, this might be a way to get to a more manageable monthly payment. Attack the smallest outstanding balance first, so that you can eliminate that payment. This is commonly referred to as a “Debt Snowball Method.” Pay off one balance at a time, then you have more money to put toward the next smallest loan balance. This payment method can be compared with the “Debt Avalanche Method,” which is where you attack the loan with the highest interest rate first. The Avalanche method will save you more money in the long run, but it might take longer for you to feel the benefit in your monthly payment.
- Take advantage of the “On Ramp” (delaying making payments on federal student loans but interest still accrues). Because of some serious drawbacks to the “On Ramp,” this should only be used if the borrower is in a short-term pickle. Some of these challenges include interest accumulation (which will in turn increase the total owed on the loan) and missed payments tacked on to the end of the loan, hindering progress made toward any of the loan forgiveness programs.
So, while loan repayments starting up again may not create a major headwind for the U.S. economy, it can create some headwinds for each of us as individuals. As these loans start to pop back up on your monthly ledger, put some thought into how you want to deal with them. Do not let them get in the way of other financial goals by making a plan. As discussed, your plan may include increasing income, reducing other expenditures, or restructuring your loans through loan consolidation/refinance. Weighing these options and figuring out how they fit into your financial plan can be challenging. Speaking with a financial professional who is well versed in the various options can bring peace of mind to the decision-making process.
The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.
Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website. https://adviserinfo.sec.gov/
Breakwater Team
At Breakwater Capital, we work with families across the United States, providing each client with a personalized experience tailored to their current circumstances, future goals, and timelines.
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