Dealing with the Past (Debt Repayment Strategies & Student Loans)

[Music] hello and welcome to Beyond biglaw money management for lawyers hi everybody Welcome to Beyond big law with Jessica Medina Esquire I'm Matt Sky Jessica is a former lawyer and accredited financial counselor she transitioned from a successful legal career to financial coaching to help people Achieve Financial stability join us as we explore how she uses her legal background and financial expertise to guide attorneys toward their true passions Jessica thanks so much for joining us thanks for having me Matt so let's start with your own experience how did you pay off significant student loans and debt and all that fun after graduating from Columbia Law School o well so I graduated from Columbia with over $200,000 in student loans I took out money to go to undergrad I took out money to go to law school I paid to the nose both times this is definitely one of the things that you want to be thinking about when you are deciding on what law school you may be considering Columbia was the best school I got into and I was a bit of a Prestige addict and so I didn't care whether they were going to give me a scholarship or not I was going and if that meant that it cost 50k a year just for the tuition I was going to be there and I graduated with all the debt to go with it you know I have conversations with you know prospective law students who are deciding between schools and one day we can have a conversation about how I help them think through that decision but I don't regret going to Colombia I did eventually pay off my student loans but man it was a journey you know when I first started I graduated and I went straight to a big law firm and most people will tell you in the personal finance world oh well you just got to pay those loans back as quickly as possible you got to get that monkey off your back 200k that is not student loan that's a mortgage with no house right I mean this is a real amount of debt this is not something that you just kind of wipe out in a year or two I was also a single mom to twins living in DC at the time so I didn't have a lot of extra cash around to really be aggressive toward paying down my loans and so I did what any reasonable person would do who doesn't understand how to handle these things I checked the longest payment plan option available 30 years and who knows how much it would have cost me over time right I don't know maybe 500k by the time I was all done with all the interest I was going to pay but I just didn't see another way forward only when I decided to move over to the Securities and Exchange Commission when I made the transition into the government I got my first taste of what it could be like to be a little more strategic about my student loans and so when I went to the government they this Federal agency had a student loan repayment assistance program there are certain federal agencies that participate sometimes it's only for certain types of employees but I was an eligible employee and I got up to $10,000 a month to put toward my federal student loans that the SEC foot the bill for so free money for me a little bit of help with my student loans I'm working in the public interest sector and so it was really a win-win-win and what I did was I made sure to really ramp up my payments on my private student loans while my Federal loans were being taken care of by the government it really just gave me the motivation that I needed to start actually attacking the principal which I had never really been able to do um you know with any with any rigor since graduating from law school so while I was in the government I finally saw my loans start going down in my in my balance and it was very motivating sad because the balance was still very very high but at least I saw it moving and then when I decided that I wanted to leave the law entirely I left the law with student loans so I had a plan to continue making payments I was going to get done with them eventually but I really did plan on using other types of assets and Investments that I had been growing over time to help me wipe out those loans in the future the timing of that was not going to be exactly said in stone but I knew that the time would come and when the time came I made a huge payment and wiped them all out uh and man it felt good that's a great feeling yeah have that myself what are common misconceptions lawyers have about managing student loan debt so I think for a lot of people they're told that as soon as you graduate this needs to be your number one Financial priority paying off your student loans that's the first thing that you should be concentrating on and like I said for lawyers with 150,000 200,000 $250,000 in loans if all you're focusing on is paying off your student loan debt you don't have any bandwidth to pay attention to any other financial goals you may have you trying to get into a house no way are you trying to start a family good luck right these things require money and if it's all going to student loan debt repayment then that's all you're going to be doing and I think that's really dangerous for professionals who are already getting a little bit of a late start on their career right they tacked on an extra years of school while their friends were offw workking maybe making contributions into their 401K plans and starting you know saving up for a down payment on a house and you're in school you're basically just racking up debt while you're trying to get your law degree and then you get out and you're told well now you have to pay all of that back because you know you're a lawyer now and it has to be paid back with lawyer money false government doesn't care nobody cares where the money comes from you don't have to still be a lawyer you can have your student loan debt from law school and so I think the two biggest myths that I deal with are number one you have to do this as quickly as possible and number two you can't make a career transition if you still have law school debt that's a sneakier one but my clients run into it a lot and I tell them you know your law degree is going to serve you for the rest of your life you don't have to be a lawyer to use your law degree look at me I'm an active financial counselor but I use my law degree and my legal experience every day I just don't practice law so I don't need to be paying back my law school debt with lawyer money to feel good about myself and so that's what I try to work through with my clients that it can take as long as it needs to take as long as you get it done in line with other financial goals that you may have we don't want it to be the only thing that you focus on unless you have a plan that that is what you're going to focus on and then you're going to be very aggressive on everything else after yeah it's definitely Breaking Free for some people from those golden handcuffs they feel they have to stay in in a career just because they started that path can you share some effective repayment strategies that have been helpful for lawyers or professionals burdened by these types of massive student loans so specifically with student loan debt there's really only three different ways that you can approach it primarily I work with folks who have a huge amount of federal student loan debt if you have private student loans I feel for you there's very little that you can do it's like having a $200,000 car loan right you got a loan with the bank and you do have to pay it at some point and your only strategy is really to refinance when interest rates are low over and over and over again to pay as little as possible that being said in the federal student loan World there are a number of strategies that you can Implement to get those loans taken care of eventually first off of course you can repay them as quickly as possible right that's always an option the government will always take your money you can always pay them early there's no penalty and so if you're in a position where you have really good income security you anticipate you will have that income security and that high wage for the entire time that you're going to be paying off your student loans then you can be really aggressive and I often will suggest that people refinance their federal student loans to private loans not right now there's too much going on but otherwise normal times yeah in normal times right you want to be looking at the interest rates in the private Market against what you might be paying the federal government sadly federal student loans have Usery type interest rates it's it's really terrible and so if you're going to pay them off as quickly as possible you might want to consider refinancing that being said you'll lose all the federal protections it's a very important decision and it's irreversible so talk to a professional like me the second option would be to go for forgiveness one of the other myths out there is that if you make too much money there's no forgiveness available to you that's completely false income driven repayment forgiveness is available at every single income level the math just doesn't always work out if you make a lot of money and so it's not that it's not a available and you're ineligible it's that you might pay off your loans before you get to the requisite number of payments to be eligible for forgiveness but everyone can qualify for forgiveness if you're in an income driven repayment plan and you make 20 to 25 years of payments depending on which plan you're in so I have a whole analysis that I take my clients through to determine are you a good candidate for re for repaying these loans as quickly as possible are you a good candidate for going for forgiveness and maybe giving yourself a little little bit of time and just sticking these student loans on the back burner and you know getting some forgiven at the end of the road or are you right in the middle and neither of those options are clearly the best option for you we might have to get a little creative along the lines of my own student loan repayment strategy I was slow to pay in the beginning I got very aggressive in the middle and then I had a huge payoff at the end there's no way that that strategy could have been mapped out the day that I graduated but keeping do open for myself and doing what I could when I could made a huge difference on my journey to getting my loans paid off and so that's also something that I discussed with my clients your repayment strategy may not be set in stone if your career changes if your life circumstances change you may change your repayment strategy and that's okay we just want to be re-evaluating it yeah diving a little deeper into that student loan forgiveness what are the typical criteria that you look for and how do you help people determine what where to start really so there really are a number of forgiveness programs sadly you know doing this podcast in 2024 we're in the middle of a student loan Whirlwind of actions the Department of Education is trying to do things private loan providers are suing the government for trying to do things there's a lot of confusion that being said there's also a lot of relief out there so when I'm working with my clients it really does matter when you took your loans out what types of loans you took out because because the government has had like 16 different types of federal loan programs over the years what repayment plans you're eligible for some of them have an income hardship requirements some of them do not how many years you've been making payments whether you work in the public interest or public service sector and whether you're eligible for Public service loan forgiveness which is a specialized program and like the Golden Goose of student loan repayment it's amazing or whether you're a teacher and maybe you qualify for Teacher forgiveness it's not nearly as generous but it does exist but so thinking through all of the potential programs what you might be eligible for and then how your financial situation maps to those programs do you make too much money to get all the way to forgiveness then we might not want to go for forgiveness you're going to pay extra an interest along the way or are do you need those protections are you in an industry like Tech where layoffs happen uh you want to be ready for that and so you need some of those Grace periods where you can make zero payments and still be working toward forgiveness so I look at my clients's entire Financial picture from their student loan debt to their other Financial Obligations to their family makeup to their career trajectory to figure out what are the best candidates for a repayment strategy then we make a decision and then we revisit it you know if there's any changes because that's so important on this long really long journey so okay let's take the person who is either close to paying off their loan or they've paid it off how do you help them achieve their other financial goals and build Wealth Beyond that oh gosh it's such a glorious day when somebody pays off their student loan exciting I'm sure yeah you can finally think about the next steps I love being there when my clients are able to do that and I've had the privilege of being there for for those moments with some of my clients that being said I also have a number of attorneys who come to me and they've already paid off their student loans they're past that point on their financial journey and actually it can make some of the other decisions appear even harder paying off debt especially in our society is such a clear first step for everyone's Financial journey and most personal finance people would agree if you're carrying highin debt yes let's prioritize that okay it's one of the rules that actually Rings true most of the time and that being said because it is such an easy first step when people get through that step they don't really know what to do because now there isn't a clear Second Step what's the second step in the process there's so many different ways that you could go there's so many routes that you could take to financial stability and so when I'm working with my clients what's really important for me is to make sure that I understand what's important to them what are their values what do they want their life to look like you know not all of my clients want to be homeowners and I think many of them show up and they're almost embarrassed to tell me that home ownership is not a dream of theirs and is it okay if they rent for the rest of their life and instead use that money to pad their retirement accounts yeah that's okay we can create Financial stability however you want it doesn't have to include homeownership right that really does get to the heart of what's important to you what are your values if you want to be traveling for 300 out of the 365 days a year maybe you shouldn't own a house you're not going to be in it very often right so starting to really understand why they would make the different financial decisions they would and then give them some strategies for how they could attack those priorities in a way that makes sense sometimes it doesn't make sense to get into a home right away if your credit isn't in a good shape right we might have to work on that first to be able to qualify and be eligible for the best types of interest rates for the best loans and so we think through from a phased standpoint what do we need to do first to get you to where you want to go and what is going to be the right order in terms of attacking these different financial goals so how does emotional resilience factor in you know people are very often overwhelmed by their financial burdens what's your advice when it comes to debt repayment in this regard so I think that debt repayment is so emotionally charged Beyond student loans right student loans are a completely different animal but I think that paying off debt especially in this country has been really created a moral dilemma for people right this is now a moral imperative that you be debt-free and if you carry debt you're a terrible person we have to unwind that because debt is just another Financial tool just like income just like savings and if we think of it that way then we can strategize how we use that tool and how it shows up in our life now I'm not going to say that after a couple of sessions with me my clients who are very emotionally ridden with guilt about their debt load feel so super awesome about it and you know are no longer worried about it but having a plan to attack it can go a long way in providing some relief not only because they know there's a light at the end of the tunnel but they also feel like they are doing something that is in line with their values and so I feel like you know Shoring up that emotional resilience that you are actually living a life in line with your values has much more to do with how happy you are than how much debt you're carrying so we make sure that those boxes are checked first and then we get aggressive on paying down any High interest debt that might be lying around and then considering where in our financial priorities other types of debt might live on our financial trajectory because it's not always the next step sometimes it's a few steps down the line I think what you're saying is so true in terms of guilt surrounding debt why do you think there is so much of that oh my goodness well we talked about Dave Ramsey right I think there there really is a tone and look I I don't want to get into you know a whole history lesson of how this country was founded and you know the the moral imperative that gets baked into a lot of Western culture but there really is this sort of good guy bad guy dichotomy of people who you know use debt poorly mostly poor people who use debt right versus rich people who use debt there isn't a lot of talk about people who are overleveraged with commercial properties they don't show up in the same conversations as people who have a lot of credit card debt and so without getting too far into that aspect of the debt the debt issues I do think that when we take any of these kind of moralistic and values-based ideas and then attach them to money tools it's very dangerous because money has no inherent value right these are just tools that we use to create other things in our life and so as much as I love being an accredited financial counselor and helping people with their personal finances the reason why I love that is not because I'm obsessed with money and I'm obsessed with numbers I was really good at math I hated it that's why I went to law school so I would never have to you know be doing math all day it's just shocking to me that I live in spreadsheets now but all that being said it's because the money gets us the life that we want it helps us feel secure it helps us do the things and be with the people that we want to be with and I think when you include debt in that conversation if going into debt has allowed you to have an experience that you otherwise would not have been able to have at a time in life where you otherwise would not have been able to have it maybe that was worth it and maybe we just need to make a plan to get yourself back into a comfortable financial position but what you get to take with you is that experience and that was the cost of the debt just when you think you've escaped those spreadsheets those spreadsheets find you they're back they haunt me Matt they haunt me there's no way out can you share some success stories or case studies of people you've been able to help lawyers who've been able to help reduce their debt impr improve their financial Outlook oh absolutely so most recently because of all of the changes in the student loan World there have been a number of relief options available that have never been available before and so I had a client who came to me last year she had loans from all different time periods she had $370,000 of student loans between undergrad a master's degree law school she had graduated law school pretty recently within the past four years and she was you know of of a certain age a little bit older graduate than you might expect and she was terrified that this was basically she was going to die with all of these loans and she was never going to be able to get out from under them and because of the very unique relief that the government had been offering for these weird situations of people with older loans we were able to take the appropriate steps to get all of her loans forgiven immediately this is an outlier situation but I can tell you the message I got from her when she realized that her balance had been completely wiped out and she now held Zar owed to the federal government she was elated it really has opened up the rest of her life and the rest of her career and her practice to whatever she wants it to be she no longer feels like she has to stay at a firm where she's been unhappy she no longer feels that she can't go byy more horses this was this is her passion is Raising horses and so knowing that the work that we did together has opened up basically an entire new life for her is very very rewarding and is some of the most fun work that I get to do with people people and then in terms of you know helping my clients with the other type of debt right not not specifically with student loans there's so much that I do with my clients just in getting them more intentional and more aligned with respect to where their money is going we do a lot of work in terms of setting up cash flow Management systems for them so they can really see in real time where their money is going and that's often how you get into credit card debt holes right you are spending a little bit beyond what you're making you don't really notice it credit card bills are very hard to track because you're basically looking at expenses from like two months ago who remembers who remembers what that was and so the systems that I teach my clients give them real-time information of what's going on with their money to help them stay on track and I've had clients pay off upwards of $50,000 while we work together in my six-month program and just watching them become more intentional and feel so good about the choices they're making with their money that's a real rewarding experience for me and I know that they enjoy it too it's a fantastic point to wrap up on everybody thank you so much for tuning in to Beyond big law for more insights and to connect with Jessica Medina visit Jessica Medina llc.com also find her on social media Jessica thanks so much for your time today thanks so much Matt thanks for listening if you liked this episode don't forget to hit that like button and subscribe to our channel for more amazing videos like this one