By the time I finished law school and my MBA, I had six figures in outstanding student loan principal to my name. My loans had a variety of interest rates, topping out around 8.5%, resulting in a monthly minimum payment of $2,098. It was overwhelming, so I created a framework for repaying my loans as soon as possible. Here it is:
I maximized income by:
- Working part-time every semester of my JD/MBA (yes, even as a 1L) at a great job that paid between $30 and $60 per hour.
- Working at a "big law" firm that paid me one class year ahead of "market" because I had another advanced degree (my MBA) relevant to my practice area.
- Earning a bonus. For reasons related to participating in various secondments and study leave to take the bar in a second jurisdiction, I earned only one bonus during my time in big law.
- Renting my guest rooms.
I maximized my cash flow by:
- Taking an assignment in one of the firm's offices in Asia. As part of this assignment, the firm covered my housing costs in Tokyo and part of the cost of storing my belongings, and paid me a COLA. I terminated my lease in Los Angeles and put my belongings in storage. As a result, I saved more than $36,000 per year for the two years that I worked in Tokyo and started making extra payments on my student loans.
I minimized my expenses by:
- Unsubscribing from retail email newsletters. When you're not bombarded by emails about sales and new offerings, it's easier to avoid shopping.
- Not signing up for cable television. This also saved me the cost of buying a television and any related components. This also reduced my exposure to commercials, which, in turn, reduced my urge to buy things I didn't need.
- Not going on vacation except for trips home for the holidays and my brother's wedding.
- Not shopping for clothes other than to replace worn out items.
- Driving a 10+ year old car.
- Living very close to the office. When I lived in Southern California, I walked to work. This saved me money on gas and car maintenance.
- Not buying new furniture for my new house (for the most part). I did buy window coverings and beds for the bedrooms with rental income.
- Not keeping up with the Jones (and, by Jones, I mean the other associates who were going to fancy dinners and on fabulous vacations).
- Being single with no dependents. This wasn't by choice, but it would be unfair not to acknowledge that it's a lot easier to stick to a repayment plan when you don't have to persuade a spouse to get on board or pay for childcare expenses.
I minimized my interest payments by:
- Refinancing my student loans with SoFi.* This dropped my interest rate to 2.9%, which increased the portion of each payment going to principal and accelerated my repayment.
- Sending every spare penny to my student loans each month (after saving $300/month in an emergency fund and contributing to my 401(k) and other retirement savings accounts). For example, in 2013, I made principal payments in the aggregate amount of $62,745.11. Other examples include sending the total amount of any "windfall" (such as tax refunds or cash gifts) to my student loans.
I maintained discipline by:
- Visualizing life after student loans. I wanted to be prepared to move on to achieve other milestones and, in moments of weakness, would think about how my future self would appreciate that my loans were paid off. In particular, because I'd really like to have children, I often thought of how challenging it would be to pay a mortgage, student loans and daycare bill simultaneously. That thought provided the needed kick in the pants to double down on repayment.
I could have paid my loans off sooner by:
- Not buying a house when I moved back to the US. Starting in 2014, I diverted cash flow to a down payment fund because I wanted to buy a house at the end of my Tokyo assignment. If I had deferred this goal, my loans would have been paid off before I left Tokyo. Ultimately, this choice was driven by all the hype surrounding the real estate market in my new city. I was worried that prices would go up substantially if I waited a couple of years to purchase a home.
- Earning more bonuses. This was somewhat beyond my control, but I could have turned down secondments, in theory, in order to remain bonus eligible during certain years. If I had earned a market bonus during each of my years in big law, I would have cut months if not years off of my repayment schedule.
- Living with a roommate during and after law school. I have had temporary roommates during the last year, but otherwise lived alone during and after school.
While paying off my student loans has given me an unparalleled sense of freedom, I think most folks prefer a more balanced approach to student loan repayment. I don't blame them--a vacation or two would have done me good over the past few years.
I haven't decided how I want to approach my finances going forward. First, I want to take a moment to celebrate this milestone. What do you plan to do to celebrate paying off your student loans?
*Referral program link.