Illustrations by Scott Snider

The Problem:

Student debt is the great financial disruptor for anyone with a significant debt load.

Many young professionals with both student debt and a house find themselves carrying 2 mortgage-like payments. It often means sacrificing saving enough for retirement, delaying necessary upgrades to the house, or not having an adequate emergency savings. Worse yet, credit card debt can snowball and create a larger deficit.

Be aware that the default plan for Federal student loans is the 10-year standard plan when no action is taken.

Avoid these plans. They are outdated or have more expensive drawbacks compared to "Old" IBR, PAYE, REPAYE, and the 10-year standard plan.

The most effective way to lower your monthly payments is through PAYE or REPAYE.

PAYE is normally the preferred choice because it offers the fastest way to debt forgiveness (20 years vs. 25 years), but REPAYE is more effective at reducing interest accrual costs. Avoid REPAYE if you are married filing taxes separately.

Avoid REPAYE if you are married filing separately on your tax returns. The spouse's income is automatically included with REPAYE, so filing separately did nothing in the way of helping you reduce your payments.

Always compare refinancing Federal debt to PAYE, REPAYE, and IBR before signing the dotted line because there's no turning back once the loans are refinanced.

A good financial plan for millennials starts at the foundation, which is solving the riddle that is student debt. After that domino falls the other pieces, like retirement and buying a house, begin to fall in place.

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