9 Strategies for Clients Stuck in Student-Debt Limbo: Advisors’ Advice

2. Save as much as possible.

The best thing to do right now given the uncertainty is to continue to save into a savings or high-yield savings account and be prepared to be on the hook for your student loan. There is so much uncertainty, and many legal challenges to the recent forgiveness efforts by the Biden administration. Continuing to save as much as possible, or saving what would have been the payments is the most flexible and safest route to go given the uncertainty.

3. Reevaluate your monthly budget.

For the past three years, since March 2020, most eligible federal borrowers have not been required to make student loan payments. These non-payments have more than likely been absorbed into borrowers’ lifestyles, or if they were proactive, they've been saving it or allocated it toward higher-interest-rate debt. Borrowers have very little control over the outcome of the pending Supreme Court case.

During this holding period, borrowers should continue to focus on what they can control and revisit their monthly budget. They should make sure that when their student loan payment kicks back in that they're not under budget.

Also, if the one-time forgiveness goes through, the $10,000 or $20,000 will be helpful, but it won't fix the cash-flow problems with respect to their monthly minimum payments for their income driven-repayment plans. The biggest win will be the shortening of expected time required to pay the loans back in full.

4. Keep making payments to yourself.

I’ve been telling clients with student debt to continue to hold off paying their student loans — while saving the money that would have been applied to the loans in a separate account. This approach will allow them to take advantage of any forgiveness when and if it arrives, while at the same time accumulating the money that would have gone to payments, so they are prepared and ready when payments resume.

If it turns out that the loans are eventually forgiven, they will have a lump sum to apply to other goals.

5. Have enough liquid assets to go with the flow.

Student loan relief might be reasonably characterized as a living organism given how many times it has evolved during the last several years. Repeated changes in student loan relief are the result of a combination of pandemic-related employment conditions that persisted longer than expected, as well as some considerable political pressure.

For graduates working in tech and biotech, an important situation to avoid is using cash you may have otherwise used to pay down student loans to exercise stock options, as this can be very risky, as well as lead to an unexpected tax bill. Young physicians often have large amounts of student debt from their training, and they too need to be careful not to make long-term financial commitments, like buying a house, based upon receiving any particular amount of student debt relief as things continue to change.

6. Keep the debt snowball rolling.

Right now is a “wait and see” time for our clients with outstanding student loans. We're hopeful that the Supreme Court rules in favor of the Biden administration, but are planning strategies either way.

If the ruling is favorable, the general strategy is to knock out any remaining balance over the forgiven amount as soon as possible. But for those who don’t have savings to do that, or still can’t afford the monthly payment, we’ll take advantage of the new IDR [income-driven repayment] rules and plan around the new rules to repay.

If the ruling is unfavorable, we’ll still use the same debt repayment principles as before. For example, repaying high-interest loans as soon as possible and using the debt snowball. We’ll also take advantage of available IDR, reduced payment options or refinancing when necessary and put extra towards the principle as you’re able.

7. Assume the worst.

I'm advising clients to assume this will eventually get shot down. The only legal argument popular among the justices is that the people who sued don't have a right to sue. Assuming they allow the process to go through, it is very likely that a different group will try to stop repayments. For now, we take advantage of no interest by saving the money to pay off the loans and stay ready to pay them off when the policy is struck down.

8. Put your deferred payments to better use.

While awaiting the student loan forgiveness decision, I’m advising clients to put the funds that would be used for their monthly student debt payments either toward other high-interest debt, like credit cards or personal loans, or into their emergency fund by adding to their high-yield savings.

Worst case: The legislation doesn’t pass and the payment is already part of their cash flow; best case: The loans are forgiven and progress is made, either augmenting their savings to give them options, or other debt is reduced, saving them on interest.

9. Educate yourself.

As the Supreme Court considers President Biden’s student debt relief plan, my advice to clients with outstanding college loans would be to stay informed. It is important to monitor any updates regarding the policy changes as they could have a big impact on your financial situation.

In the meantime, borrowers should consider ways to lower their monthly payments or restructure their existing loans if possible. This could include refinancing and consolidation of loans in order to gain access to better terms and interest rates. I would also suggest researching different loan forgiveness programs that may be available based on your occupation and other criteria.

Finally, it is important that borrowers remain disciplined in paying down their student debt. Make sure you are staying on top of payments and budgeting accordingly, so that you can make progress toward financial freedom.