With more than eight million federal student loan borrowers currently enrolled in seemingly defunct income-driven repayment (IDR) plans like Saving on a Valuable Education (SAVE), Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE), along with the ever-threatened future of Public Service Loan Forgiveness (PSLF) and Grad PLUS Loans, law students and legal professionals who funded their legal education on the promise of these plans and programs are facing a force paradigm shift.
It’s easy to understand why so many borrowers are stressed, tired and frustrated. But remember, frustration without action only grows. Let’s direct that energy to gaining financial stability now and to maintaining adaptability for future outcomes.
At the very least, millions of borrowers who were enrolled in SAVE are currently in a non-interest accruing forbearance while we all wait to see what comes next. As the situation continues to evolve, here are some proactive steps to help navigate these uncertain times:
Get a handle on your cashflow
Create a detailed budget to track your income and expenses. Identify areas to reduce spending and find opportunities to increase income. If you are able to generate a discretionary surplus, you can use this time in forbearance to tackle other goals and build a cash cushion.
Build an emergency fund
An emergency fund is a critical component of financial resilience. Referred to as your liquidity ratio in financial circles, you should aim to cover at least a few months’ worth of living expenses in a readily accessible account. This fund can serve as a financial cushion if your IDR strategy or PSLF eligibility is more permanently disrupted.
Lower your debt-to-income ratio
Focus on lowering your debt-to-income (DTI) ratio, which is the measure of your monthly debt payments compared to your gross monthly income. Use this time to pay down high-interest debts, such as credit card balances, and avoid taking on additional debt unless absolutely necessary.
Stick with flexible loans
Federal direct loans will still (presumably) offer more flexibility compared to other types of student loans. The outcome of the current changes to available plans may still include an income-driven payment option, and more concrete steps would have to be taken by Congress to alter the PSLF program in a substantial way. Federal loans are still the loans that qualify for these options, versus private student loans which do not.
Create a plan B
Given the legislative risks to IDR plans and the PSLF program, consider what you would do if these programs were significantly altered or eliminated. Scenarios could include switching to another (or new) IDR plan, adapting your PSLF strategy to any program changes, and even requesting deferment or forbearance from your loan servicer to catch your breath and take stock of the new options. Having a backup plan can provide peace of mind and ensure you are prepared for any outcome.
Clean up your credit
Depending on the outcomes associated with Grad PLUS borrowing, you may have to consider new or modified private loan products in the future, so this is also a good time to pull your credit reports, check your score, and take any steps necessary to optimize your credit profile should it be needed to qualify for future loans.
Stay informed (and tune out the noise)
Keep your finger on the pulse of any developments that could affect your repayment strategy by regularly checking official sources for updates on federal student loan programs and potential legislative changes. Subscribe to newsletters, join relevant online forums, and follow credible financial news outlets to stay informed, but proceed with caution and validate any news with official guidance.
Seek professional advice
In addition to trying to communicate with your loan servicer about any specific questions on your account, seek out support personnel who have a good grasp on changes as they arise. This can include your financial aid administrators from your school or alma mater, financial counselors, student loan counselors and even financial advisors who are certified in student loan advising. These people can help you understand the implications of legislative changes and develop a comprehensive financial plan that aligns with your goals.
Advocate for change
Reaching out to your members of Congress about the importance of IDR plans, the PSLF program and not capping Grad PLUS Loans are just a few of the important issues that directly impact the ability of thousands of students to attend law school and repay their subsequent loans. Legislators need to hear from their constituents who are most impacted by these changes. Share your experiences, concerns, and the potential effects of these changes on your life to ensure that your voice is heard in the policymaking process.
What’s next?
While financial uncertainty can be stressful, focusing on what you can control and staying flexible can help you navigate these times with confidence. By getting a handle on your cashflow, building an emergency fund, lowering your DTI ratio, sticking with flexible federal loans, creating a backup plan, cleaning up your credit, staying informed and seeking professional advice, you can build a resilient financial strategy. Remember, frustration without action only grows— proactive planning and adaptability are key.
