Small Law Firms

How A Solo Tax Lawyer Paid Off $150,000 In Student Loans In 7 Years Without Biglaw (Part II)

Is this lawyer happy with his decision to pay off his loans? Obviously.

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Nowadays, it is rare to hear about someone without a high-paying job being able to pay off a large student loan in a few years. But it can be done. Last week, I interviewed a tax attorney who pretty much paid off his student loans by setting goals, minimizing expenses, and taking advantage of a change in the law that created some business.

But paying a six-figure student loan in a relatively short time is not easy. And is it worth it? So today, we’ll continue the interview talking about the sacrifices made along with some tips on paying down the loan faster.

Some readers thought that you must have had no life to pay off the loans so quickly. How would you describe your quality of life during the repayment period?  

Looking back, I think my quality of life wasn’t bad. I went out with friends. I had fun. During the first year or two, I didn’t have a lot of business so I couldn’t buy a lot of things. But as business picked up, I spent so much time on work that I didn’t have time to spend the money I earned. I noticed that most of the “fun” stuff I bought wasn’t fun anymore after a few months. Also, I don’t have expensive hobbies.

And while I had a budget for everything, it didn’t necessarily mean I was penny-pinching. For example, I try to budget $10 per day for food which is surprisingly doable where I live. But when I do go out to eat at a fancy restaurant, I always invite a client and talk business so the cost can be partially tax deductible.

But as the loan balance went down along with the monthly payment amount, my quality of life improved because I didn’t have to worry anymore. In an emergency, I could skip a few payments without having to worry about collection calls and ruining my credit.

Would you marry someone who has a large student loan?

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In all honesty, probably not unless the person plans to (and is in a position to) pay it off within a reasonable amount of time. I’m not saying that people who continually have large debts are financially irresponsible. But a person who prefers to pay down debt as soon as possible is not likely to not get along with someone who is content paying the monthly minimums. This can eventually lead to fights over money and as we all know, money is one of the leading causes of divorce in America.

Of course, everyone has unique financial circumstances, so I may make an exception for the right person.

So what advice can you give to people who want to pay off their student loans quickly?

The obvious answer that we have heard a million times over is to spend less than you earn and use the leftover funds to pay down the loans. And also refinance to a lower interest rate. But I realize that life is not that simple.

First, avoid impulse purchases. People tend to impulse-buy things that are usually expensive but end up being nearly worthless after a few months.

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Instead, be very practical with your spending, especially when it comes to major purchases. Let’s take a car, for example. You want to get from Point A to Point B? You can do that with a BMW 3 Series but also with a gently used Honda Accord.

Do you want a luxury car so you can show it off and impress people? If that’s the case, you may need to be in your car for a good part of the day which sounds very unproductive. Very few of my clients have seen my 10-year-old economy car because we always meet at my office and my car is hidden in the parking structure. And during the very brief time I drove a luxury car, it really didn’t do anything for me and most people didn’t care after a while. I recall being worried about the repair bills and getting scratches.

Finally, let’s talk housing. I lived at home because that option was available to me. I realize that it’s not an option for some because of the distance from work or internal strife. When I read about the Biglaw attorneys who bill insane hours to get their bonuses, I wonder just how much quality time they spend in their luxury apartments. On that note, I strongly suggest finding cheaper housing. Rent is generally the biggest expense, and using that money to pay down the student loan principal can make a real difference.

Know the tax law basics. Tax law is complex but because of this, you may be entitled to deductions you didn’t know about. While you don’t need an LL.M. in Tax, you can start by doing some online research and later get to know a tax professional. If you are a W-2 employee, learn how to maximize your above the line and itemized deductions.

If you are self-employed, knowing a tax professional is almost mandatory. Learn how to take advantage of the home office deduction. And if you drive a car, know when to lease or buy. Or when to use the standard mileage or actual expense method. And learn what the audit red flags are and how to minimize audit risk.

In any case, try to make tax planning a year-round endeavor. You’ll get better benefits as opposed to last minute planning.

Finally, be obsessive about paying off the student loans. I kept a diary of my balances on almost a daily basis. I also tracked the daily interest accrual. It’s gratifying to see the interest accrual go down, especially after you make a large payment. Hopefully, it will further motivate you to continue pushing until you see the light at the end of the tunnel.

Was paying off the loan worth it? Would you have done anything differently?

The one thing I would have done differently is avoid getting the $150,000 debt in the first place. I would have tried harder to get scholarships before matriculating. And once I realized I wasn’t graduating in the top of my class, I would have focused more on getting paid jobs during the school year.

Of course paying off the student loan is worth it, although at times I think about what else I could have done. But each scenario has its own potential benefits and problems. I probably paid close to $180,000 and I could have bought a house with the money. With home values increasing, I could have used the equity to pay off the loans and get an interest deduction. But I would be locked with mortgage payments during the unpredictable startup years. Or I could have taken advantage of the income based repayment programs, but there is the tax bomb when the loans are forgiven which could have totaled close to $300,000 had I paid the minimums for 25 years.

But I’m happy with my decision. And I personally couldn’t care less if student loans became easier to discharge in bankruptcy. If that happens, I’ll just expand my practice to cover bankruptcies.

Shannon Achimalbe was a former solo practitioner for five years before deciding to sell out and get back on the corporate ladder. Shannon can be reached by email at sachimalbe@excite.com and via Twitter: @ShanonAchimalbe.

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