6 Ways to Conquer Your Student Loans
Oh, student loans…how I loathe you!
If only I could go back in time and tell myself NOT to go to college!
But in all seriousness, the looming thought of having to pay off student loan debt after you graduate is not something to look forward to. Unfortunately, it is something that most people have to do, due to the ever-increasing tuition and fees associated with getting a higher education.
Depending on which type of school, and which specific one you attend, you could be facing ten’s of thousands, if not more student loan debt when you finally graduate. For many, this is extremely daunting and can seem like a never-ending black hole!
But don’t worry, there are things you can do to lighten the load!
Although I think free college would be great (hint hint Mr. president…) that’s not going to help you now if you already have student loan debt.
Here are 6 things that you can start working on today to start paying down those student loans!
1. Start as early as possible.
First of all, you should make sure that you really know what kind of student loans you have. You may have to start paying your interest on your loans while you are still in school or if your loans are in deferment. You want to be aware if you have any unsubsidized loans, as these are the ones that you are responsible for any accrued interest.
You want to be aware if you have any unsubsidized loans, as these are the ones that you are responsible for any accrued interest.
The good news is you have a 6 month grace period after you stop going to school or you switch to attending part time. So save up as much as you can during that 6-month period to try and get a head start.
You don’t have to pay anything as long as you are enrolled in school at least half-time. Even putting in a few dollars a month is going to help in the long run. Whatever you pay off while you are still in school won’t accrue any interest that you will have to pay on later.
Take a minute to think about it. For however long you are in school-4 years, 12 years-if you are putting anything towards a subsidized or unsubsidized loan that is a lot less than you will have to pay off after you graduate. So you can actually start living your life after graduation and not continue to live off of Ramen noodles.
Quick tip: talk to your lender, they are not that scary. Ask them if you are able to apply the payments you are making while in school to your accruing interest. If your loans aren’t accruing interest-BONUS-then ask for the amount to be applied to the loan with the highest interest rate or balance.
2. Snowball your student loan debt
If you know anything about personal finance, then you have probably heard about Dave Ramsey’s snowball method. If not…you have obviously been living under a rock!
Let me give you a quick breakdown…
The gist of the debt snowball method is to pay off your debt as fast as you can. Generally focusing on those lower monthly payments first and working your way up to the larger monthly payments. So when you are planning your debt snowball there are 3 things that you need to consider: the total loan amount, the interest rate, and the minimum monthly payment.
Let me provide an example for you:
Katie has to come up with a plan to pay off her student loans that will fit into her budget. She wants to pay them off as soon as possible, to avoid paying a ton of interest. She has 3 loans that she needs to take into account and a budget of $250 a month to work with.
Loan 1: $5,000
Interest rate: 2.5%
Minimum payment: $75
Loan 2: $1,500
Interest rate: 5.50%
Minimum payment: $20
Loan 3: $6,500
Interest rate: 4.75%
Minimum payment: $70
Using the CreditKarma loan repayment calculator, we can see that if Katie only paid the minimum monthly payments every month, it would take her 72 months to pay off the first loan.
It would take here 93 months (almost 8 years) to pay off the second loan.
For the third loan, it would take her 116 months to pay that one off.
So paying the minimums it would take her almost 10 years to pay off all of her student loans-depressing I know!
However, implementing some of the other money saving and budgeting methods, Katie has a total of $250 a month to use towards paying off her student loan debt. Considering she will be using the debt snowball method her monthly payment will look a little like this:
Loan 1: $70
Loan 2: $105
Loan 3: $75
So she will be paying the minimum payments on loans 1 and 3, and an additional $85 a month on loan 2. So she is starting with the lowest balance first and paying that one off the quickest. Which it would then only take her 15 months to pay that one off instead of the original 93 months-saving her $287 in interest…booyah!
In 15 months after she is completely paid off loan #2, she will them take that $105 that she was putting towards that loan and apply that amount to loan #3. So now she is paying $180 towards loan #3 and $75 to loan #1. It would then take an additional 34 months to pay off loan #3. Then an additional 7 months to pay off loan #3 after applying the total $250 repayment budget to the last loan.
So now it has only taken her 56 months to repay her loans using the debt snowball method rather than the original 116 months paying only the minimum payments. That is cutting her loan repayment time in half by adding an additional $85 a month towards her student loans.
You can figure out how long it would take you to repay your student loans using the debt snowball method by using the CreditKarma repayment calculator.
3. Student loan forgiveness programs
They are ways to pay the minimum on your loans and have them forgiven after a certain period of time. If you are employed in any type of public service or are a teacher, you may be eligible for a forgiveness program. The general requirement for this is that you need to work in that field for 10 years.
I know, that may seem like a long time, but if it’s something you were going to do anyway, then why not!
In order to truly take advantage of this though, you should apply for income-based repayment plans. This goes specifically off of your income, not your spouses. If you don’t apply for the income repayment plans, it would generally take you 10 years to pay off your loans.
This kind of defeats the purpose of loan forgiveness. Why struggle to pay your loan payments every month when you can have the payments significantly reduced through income repayment? You can find more about forgiveness and income repayment plans on the Federal Student Aid website.
4. If possible, pay extra
Unfortunately, student loan debt is not as easy to get rid of as other types of debt. If you file for bankruptcy, your student loans stay! So you might as well suck it up and pay it off as soon as possible.
I know you don’t want to use that precious beer money to pay more on your student loans, but let’s look at the reality here. It’s the smart thing to do! Take whatever extra you can and put that towards your loans with the highest balance or the highest interest rates. For Christmas and birthdays, ask for cash instead of the newest gadget. But be honest with people, tell that it is going to pay off your student loans.
Do you really want to be paying off your student loans debts for the however many years? Of course not. So suck it up now and live poor for a little while longer so that you can live better later in life!
5. Avoid defaulting like the plague!
So if you read the post about fixing bad credit, you already know that your payment history accounts for 35% of your credit score. This includes your student loan payments! “Defaulting” is a fancy way of saying that you are paying your student loans late, and this is something you do not want to do!
If you fall into default it can cause a lot of issues. You may not be able to get additional loans for school. You might be turned down for other types of loans, like for a new car or house. It also affects your credit score-remember 35% of your score is calculated by whether or not you make your payments on time.35% of your credit score is calculated by whether or not you make your payments on time! Click To Tweet
Unlike other loans that are defaulted on, this is the government we’re talking about, and they don’t mess around. With a car or house, the bank has something physical that they can take away from you.
The government can take your taxes 🙁 or garnish your paychecks. Don’t let this happen! If you have problems repaying your loans, talk to your lender. See if there is something you can work out.
When my grace period was over and the time came to start repaying my loans, I had just been let go from my job, and my minimum payment added up to about $2,000 a month! (Yeah, I had A LOT of student loan debt-Ph.D.’s aren’t cheap!) Before I really knew about personal finance, I had a slight heart attack-thinking how in the world am I supposed to pay that!? That is over twice what I pay for my mortgage!
So I called my lender and asked what I could do. They gave me a couple options-income based repayment (which come out to $0) or unemployment deferment (also $0). I chose to go with the unemployment deferment because that had a timeline associated with it- I believe it was 6 months spans and then I had to reapply for it and I could only have it for a total of 18 months. Whereas the income-based repayment method is something you can use at any time and there is no time limit (that I am aware of).
So, considering I knew that I wasn’t going to go out and get a traditional “job” I opted for the unemployment deferment. This way when I actually started making money working from home-I could switch over to the income-based repayment, and my payments would stay low (you know, until I started racking in the big bucks!)
But remember, everyone is different, you have to elevate your situation and see what will work best for you.
But just know, if you lose your job or your income is reduced, don’t have a heart attack about your student loans, there are options!
6. Use OPM (other people’s money)
Did you know that certain companies will help you repay your student loans?
Although the company has to benefit from this also!
In these situations, companies will probably make you sign a contract to stay with them for a certain period of time and you have to be working on a degree that will benefit them. You can’t work for a tech company and expect them to pay for a history degree.
Maybe you got into the company with an associate’s degree but you need a bachelor’s degree to advance to the next level. Your employer might be willing to pay for it. Higher degrees and additional certifications normally equal higher pay!
You might think that it’s too late to apply for scholarships if you are already out of school, but it’s not! There are scholarships available specifically for those individuals looking to pay off student debt. These are called debt scholarships or deb relief scholarships.
On that note…
Paying back your student loan debts is going to take time and patience. I recommend keeping a budget sheet to track your bills and expenses. You might even be able to find some of that extra money I was talking about earlier to help pay those loans down faster.
What tactics have you used to pay off student loans faster?
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