Navigating Student Loan Repayments: A Guide for the Post-Grad Generation

It’s finally coming to pass. The chapter of relief – the pause on repayments and interest for the colossal $1.6 trillion federal student debt carried by 44 million Americans – is undeniably drawing to a close this time. Mark your calendars for August 31st.

Initiated as an emergency measure in the face of the Covid-19 pandemic, the repayment hiatus took root back in March 2020. It was a lifeline extended repeatedly, sometimes even at the eleventh hour, which inadvertently led some borrowers to disengage from the matter. But a pact forged between President Joe Biden and congressional Republicans has definitively sealed the fate of the moratorium. Additionally, a Supreme Court verdict quashed Biden’s proposal to forgive either $10,000 or $20,000 of debt for a majority of borrowers. This decision has far-reaching implications, affecting nearly 20 million individuals and wiping away forthcoming payments.

With the recent news of student loan repayments resuming, we wanted to take a moment to share some essential insights on what you need to know and do to effectively manage your student loans. At K Smith Company, we understand the significance of financial planning and strategy, so let’s dive into the key points you should be aware of.

**1. *Know Your Loan Details:* Familiarize yourself with the specifics of your student loans. This includes understanding the type of loan, interest rates, and repayment terms. These details will impact your payment amounts and overall repayment strategy. Since the start of the moratorium, tens of millions of borrowers have gotten a new loan servicer. You will want to take action now to make sure your contact information is up to date with the correct company. This is an easy step: Go to the Department of Education website: StudentAid.gov to review your contact info, and update as needed.

**2. *Review Your Budget:* Now is the time to revisit your budget. Assess your income, expenses, and financial goals. Allocate a portion of your budget for loan repayments, ensuring that you’re comfortably covering your obligations without compromising other financial priorities.

**3. *Consider Loan Consolidation or Refinancing:* If you have multiple loans, consolidating them into a single loan or refinancing to a lower interest rate could simplify your repayment journey. However, make sure to carefully evaluate the pros and cons before making this decision.

**4. *Explore Repayment Plans:* Federal loans typically offer various repayment plans, such as the standard repayment plan, income-driven plans, and more. Research and choose the plan that aligns with your financial situation and long-term goals. If your employment situation has changed over the last 3 1/2 years, you may no longer be in the right repayment plan, and changing could save you money.

**5. *Automate Payments:* Setting up automatic payments can help you stay consistent and avoid missing deadlines. Many lenders offer interest rate reductions as an incentive for automatic payments, which can save you money over time. If your loan has moved to a new servicer you will need to reauthorize any previous automated debiting.

**6. *Prioritize Higher Interest Loans:* If you have multiple loans, consider focusing on paying off loans with higher interest rates first. This approach can help reduce the overall interest you pay in the long run.

**7. *Save for Emergencies:* While repaying your loans is crucial, don’t forget to build an emergency fund. Life is full of unexpected twists, and having a financial safety net will provide peace of mind during uncertain times.

**8. *Take Advantage of Tax Benefits:* Certain student loan interest payments may be tax-deductible. Be sure to consult with a tax professional or utilize tax software to ensure you’re maximizing these potential benefits.

**9. *Stay Informed:* The Biden Administration has launched a string of relief initiatives for older borrowers. For example, last month, the Education Department said it would be providing $39 billion in debt relief to more than 800,00 borrowers who may have been paying for decades and could have benefitted from an IDR program. Another initiative, recently put on hold by a court, is designed to provide loan forgiveness to borrowers who were misled by their schools. If you are an employee there are also two other helpful programs available through your employer. A Covid-era tax provision allows employers to pay up to $5,250 towards your student loans each year without it counting as taxable income to you, through 2025. Beginning in 2024, employers can opt to count your student loan payments the same as they would your contribution to the company’s 401(k) plan, for the purposes of providing an employer 401(k) match The financial landscape is always evolving. Keep yourself informed about any policy changes, loan forgiveness programs, or opportunities that could impact your repayment strategy.

**10. *Seek Professional Guidance:* If you find the world of student loan repayment overwhelming, don’t hesitate to seek guidance from financial advisors or professionals. We can help tailor a plan that aligns with your unique circumstances and goals.

Remember, navigating student loan repayments is just one aspect of your financial journey. While it may seem daunting, taking proactive steps now will set you on the path to financial freedom and success. At K Smith Company, we’re here to support you every step of the way. Feel free to reach out if you have questions or need personalized advice.

Let’s face these challenges head-on and build a secure and prosperous future together.

What Is Your Net Worth?

How many times have you googled Net worth of *insert celebrity name* ?? I know I’ve done this quite a few times. We often hear people mention the term, but do you know how to calculate your net worth? If not, let’s sip some latté and break this thing down…

Quick Accounting 101 Lesson:

Assets are anything owned of use or value that can be converted into cash. Assets include cash, investments, land, building, equipment, etc. On the other side, we have liabilities. A liability is money owed; an obligation against an asset.

Your net worth is basically everything that you own minus everything that you owe. If you sold all your assets and paid off all debts, how much money would you have left over? Consider this your financial report card. It’s a reflection of your financial health. Calculating your net worth should be one of the first steps to achieving your financial goals. You can’t plot a financial goal map if you don’t know where you currently stand. 

How To Calculate Net Worth:

List all assets and the estimated value.

  • Checking and savings account balance
  • Brokerage/Investment accounts
  • Estimated house/vehicle value
  • Jewelry and collectibles

List all debt.

  • Credit card debt
  • Mortgage balance
  • Car loan balance
  • Medical bills owed
  • Student loans

Subtract your total debt from your total assets. You have now calculated your net worth!!!

Net Worth Analysis:

Okay, so you’ve calculated your net worth. If your assets exceed your liabilities, then you have a positive net worth. Now, if your assets do not exceed your liabilities, then you have a negative net worth. If you calculated a negative net worth, don’t worry. A negative net worth is common for young millennials. This is often due to high student loan debt. This means that you have not earned enough money to offset the debt that you currently owe. The goal is to focus on increasing your net worth. In order to increase net worth, you should increase assets and/or decrease liabilities – paying down debt, building equity in your home, purchasing more investments (stocks, bonds), etc.

There is no standard when it comes to net worth expectations. Every individual has different financial needs and based on his/her lifestyle will have different financial goals. A formula that is often used as a benchmark when it comes to determining your “target” net worth is:

Net Worth = (Your age – 25) × (Gross Annual Income ÷ 5)

Regardless of where you currently stand financially, it is very important to know and understand your net worth. Understanding where your money is going will hopefully help you make better financial decisions, especially when deciding between if something is a need versus a want. Whether you are using an excel file or your favorite finance app, tracking your finances is key. If you need a recommendation, head over to Mint. It’s a free tool, that makes tracking your money easy for all levels.

 

Increasing Your Financial Literacy

April is National Financial Literacy Awareness Month! Statistics show that only 24% of millennials have basic financial literacy knowledge. Regardless of your age, NOW is the perfect time for you to decide to take control of your finances. Understanding your finances and money management are essential tools for success. Over the last couple of weeks, several people have asked me, “WHERE DO I START??”.

Well… here are some good places to begin your financial awareness journey:

Search the internet – this might sound pretty basic, but it works. Do you have a particular topic that sparks your interest? Debt Management. Credit Report. Investing for Beginners. GOOGLE IT!  The world wide web is a great resource tool which is available to most 24/7 by using his/her cell phone. Top financial education sites:

Read books, articles and magazines. Picking up a book, financial magazine and/or newspaper is another great way to increase your financial literacy, and these are typically more credible sources than what you may find searching the internet. Top picks:

  • Forbes Magazine
  • Money Magazine
  • Wall Street Journal
  • Rich Dad Poor Dad by Robert T. Kiyosaki
  • Money: Master the Game by Tony Robbins

Watch finance based television programs. Reading isn’t everyone’s cup of tea, but don’t let that stop you from increasing your financial knowledge. There are several television programs that will provide you with the tools you are seeking. Top picks:

  • CNBC TV
  • Bloomberg TV
  • CNN
  • Fox Business News

Listen to talk radio/podcasts – Personally, I’m an avid reader, but lately podcasts have become my go-to. With the daily demands of life, it is often hard to sit down and focus 100% of my time to reading. For those individuals who are often on-the-go, podcasts are the ideal solution. I often listen to my shows while driving or while I’m working. Top picks:

  • The Clark Howard Show
  • Listen Money Matters
  • The Dave Ramsey Show
  • Stacking Benjamins

Take a financial literacy class – You can often find personal finance classes offered at your local public library. If your local library does not have classes available, then you may be interested in enrolling in a course at a 2 or 4 year college. Depending on the school, you may be able to find an online course which will enable you to learn from home. 

Start and investment club – Starting an investment club can have multiple benefits (networking, accountability partners, increased capital for investing, etc). Whether it be for the purpose of increasing your knowledge around personal finances or actually investing (real estate and/or stock market), being around like-minded individuals is always a plus. I will caution you to vet all individuals when it comes to investing your money with a group.

… and last, but definitely not least.. THE MOOLAHTTÉ BUZZ™ *sips latté* .. this site was created for the purpose of increasing financial literacy by sharing the wealth of knowledge I’ve gained over the last decade from books, mentors, and personal experience. 

Please comment and share your favorite books, TV programs, and podcasts below!!