Cait Howerton, CFP® shares her deep expertise in student loans and provides a broad overview on strategies for paying them off.
Listen now and learn:
- Challenges high-earning professionals with student loans face
- Strategies for managing student debt during low and high-earning years
- How to manage lifestyle creep
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Show Notes
Cait Howerton, a Certified Financial Planner (CFP®) is a leading voice in diversity, inclusion, LGBTQ+ financial issues, values-aligned goal setting, and student loan debt.
In this episode, Cait shares some of the challenges high-earning professionals with student loans face. She also talks a bit about strategies for managing student loans during your low and high-earning years as well as how to manage the lifestyle creep that can derail progress.
Here are my notes from our conversation…
The challenges professionals face with student loans vary depending on where you are in your career. The biggest one is thinking about how to prioritize loan repayment with other financial goals.
Read my article How To Decide Whether to Pay Off Student Loans Or Invest to learn more
There is a mathematically optimal way to prioritize paying off student debt versus other goals such as saving for retirement, buying a home, starting a family, etc. But it misses the emotional pressure to maintain or obtain a certain type of lifestyle.
A proactive loan repayment strategy that both works in the lower-earning years and the future high-income years is extremely important.
Strategies for Managing Student Loan Debt during Lower-Earning Periods (4:30)
The most common repayment strategy when you’re earning a lower salary is leveraging an income-driven repayment plan.
These plans allow you to make a smaller payment while your income is low, which then gives you the potential to save towards other goals. The key here is managing expenses. Choices about where you live, whether you share rent, and maintaining a modest lifestyle, go a long way toward putting you in a strong financial position.
Deferment is a less desirable option, but it can be necessary if you’re in school and can’t afford to make any interest or principal payments. And in the worst case scenarios, you can also put all of your student loans into forbearance until there comes a time when you can be able to pay them down sooner.
When it comes to strategically paying down your loans, you should obviously try to avoid deferment or forbearance—but as Cait points out, if you don’t have the money, you don’t have the money.
Again, that’s why so much of managing student debt in your low-earning years is about managing your expenses. Managing expenses well starts with making good choices around your basic needs such as housing, food, transportation, insurance, etc.
Download my Goal Planning Worksheet and Cash Flow Worksheet
Making reasonably cost-effective choices with your basic needs makes it easier to afford interest payments during your low-earning years, as well as think about making modest contributions to other goals like retirement.
Cait’s personal experience paying off her own loans, managing expenses, and making interest payments during low-earning years set her up to aggressively pay down debt as her income increased without feeling any sort of lifestyle pinch.
Maximizing Loan Repayment during High-Earning Years (9:20)
Cait points out that people entering their high-earning years might want to work with a financial advisor because they can maximize their income by allocating capital most efficiently between student loans and other financial goals. They also have experience in navigating valuable forgiveness programs and avoiding “tax bombs.”
Thinking through loan repayments during high-earning years starts with identifying how quickly you want to pay down the debt. The appropriate timeframe is a balance of what makes financial sense and the emotional benefit from alleviating the added financial stress.
But even before you start aggressively paying down student loan debt, Cait suggests you should prioritize building an emergency fund of at least three months’ worth of expenses. I tend to agree. You just can’t predict what happens with life, so having a cash reserve gives you some wiggle room and flexibility.
Cait and I also talked about how loan forgiveness programs fit into strategies for high-earning professionals. There are a shockingly large number of loan forgiveness programs. The best way to get student loan forgiveness, though, is through the Public Service Loan Forgiveness (PSLF) option.
In this program, student loans are forgiven after 120 payments (10 years) if you’re working in the public sector, which is very broadly defined. You also must use an income-driven repayment plan to qualify for forgiveness. If you have a high income, these payments could be quite high, so it’s important to run the math on whether trying to qualify for such a program makes financial sense.
Because there are a lot of tradeoffs involved, it’s common to see people hire a financial advisor as their income is increasing so that they can make the most of their hard-earned income.
Managing Lifestyle Inflation (17:00)
It’s common for high-earning professionals with student loans to feel pressure to live a certain lifestyle. And when you become a high earner after years of scraping by, the desire to finally indulge is very understandable.
Cait notes that she is aggressively paying down her debt, but that she doesn’t enjoy it. She finds herself thinking about how she could be using that money on a vacation or home improvements instead. But she remains focused on paying it off and having a solid financial foundation to make the most of her career progression.
Lifestyle creep is an issue whether you have debt or not. The key is being intentional with your spending and automating your savings as much as possible.
Find Out More About Cait Howerton:
- Follow Cait on LinkedIn
- Archer Investment Management (Firm Cait works at)
Resources:
- How To Decide Whether to Pay Off Student Loans Or Invest (read)
- What are income-driven repayment plans (article)
- What is Student Loan Deferment (article)
- What is Forbearance (article)
- Download: Goal Planning Worksheet and Cash Flow Worksheet
- How To Build An Emergency Fund (read)
- Programs For Student Loan Forgiveness by Robert Farrington
- Public Service Student Loan Forgiveness Programs by Robert Farrington
- EP. 28: How To Interview An Advisor
- What Is Lifestyle Creep
- How To Automate Your Savings
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