How many of your have or have had student loan debt? It’s a necessary evil in most cases but student loan debt is now getting national media attention as it’s been labeled the next potential “bubble” and is affecting more students ever with rising tuition costs. As I’ve mentioned money management is rarely, IF EVER, taught in school. It’s hard to think of someone graduating college without personal finance 101. Let alone how to pay off nearly $40,000 that 2016 graduates end up owing in student loans!
Luckily I have a great guest post on how one man paid off $87,000 of student loans in less than three years!
FP runs the blog, Financial Panther, where he writes about all topics in personal finance, paying off debt, investing, and side hustling in the sharing economy. He believes that everyone has what it takes to pay off debt, take control of their money, and become a Financial Panther. You can follow FP on Twitter.
On to the guest post…..
“In recent years 70 percent of students graduated with student loans. The average 2016 grad holds $37,712 in student loan debt” – US News
I remember feeling trapped. That’s the best way to describe how I felt when I graduated from law school in 2013 at the tender age of 26. Along with my shiny new diploma, I also graduated with approximately $87,000 in student loans. The interest rates for those loans ranged from 6.8% to 7.9% and my monthly payment was a little over $1,000 per month for the next ten years. If I just paid the normal amount, like a normal person, that would be $1,000 of my income going out the door every month until I was 36 years old! I didn’t know a lot about personal finance at the time, but I did know there was one thing I wanted to do when I graduated law school – pay off these student loans and get my life back as soon as possible.
Here’s the thing. My monthly student loan payment was a totally manageable amount for me to pay. I graduated law school with good grades and landed a job at a large law firm in the Midwest making good money. My hard work had paid off. Paying the minimum payment for the next ten years was something I could definitely do without any problems (assuming I kept making this type of salary). It was also the totally normal thing to do.
But, I didn’t want to be normal. I knew that the life of a big firm lawyer wasn’t for me. The hours were terrible, the stress was high, and the atmosphere was generally unpleasant. It wasn’t great for both my physical and mental health. The only reason I needed to stick it out was to be able to pay back my student loans. I was trapped by my debt.
One of the best personal decisions I made was paying off my student loans as fast as I could. It meant I could take a chance at a new job that I thought would be more satisfying, even though this job paid $50,000 less than what I had been making previously! Despite this huge pay cut, I’ve still been able to save almost the same amount of money as I was saving before! This wouldn’t be possible if I had $1,000 per month flying out the door each month.
I truly do believe that everyone should pay off their student loans as fast as possible. It’s liberating and can give you the freedom to take chances you might not otherwise have been able to take. Without your student loans weighing you down, you really have the ability to utilize your education in the way you see fit. I don’t think anyone should have their student loans dictate what type of work they have to do.
Here are five suggestions to help you on your own student loan payoff journey.
Live Like A Student
The only way to get out of student loan debt quickly is to pay it off aggressively! It’s so obvious right? But here’s the thing, the majority of people won’t do this! Instead, most people get out of school and immediately upgrade their lifestyle. Nicer apartment, fancier clothes, more expensive restaurants. If you’ve been living like a student for a while, its easy to get that first paycheck and want to get the finer things in life.
But don’t do it! If you lived perfectly fine as a student before, you can keep living like a student for a few more years! Keep your housing costs low. Take public transit or bike to work. If you’re making a good income, treat that extra income like its a bonus and reserve it solely for student loans.
For most people, when you’re starting out your career, you won’t have a ton of expenses other than rent, food, and entertainment. Big obligations such as houses or family likely aren’t in play yet. There’s really no better time to live like a student and pay off those loans than in those first 3-5 years out of school.
You can’t pay off your student loans without a plan and knowing where you stand. I’m always surprised at how many people have no idea what they owe in student loans or what they pay in interest each month. With technology the way it is, you really have no excuse for not having your student loan balance in one centralized spot. Use apps like Mint or Personal Capital to track your loan balances. Another app I recommend to help you on your debt payoff journey is Ready for Zero. They have a nice feature in which they tell you how much interest your loan accrues per day.
Regularly tracking your student loan balance also gives you the added benefit of motivation. Trust me, you’ll get a huge sense of satisfaction each time you see your student loan balance drop. At first, it won’t look like much, but as the months go by, you’ll really see a difference in that balance. Set yourself your own personal benchmarks. I cheered when I hit each of my benchmarks, all the way until my balance reached zero.
Refinance Your Student Loans
If you are paying off your loans aggressively, you should seriously consider refinancing them to the lowest interest rate you can get, especially if you have good credit and are making a good income. A lot of colleagues at my law firm were hesitant about refinancing because they didn’t want to risk losing any federal protections. But, if you’re paying off your student loans aggressively, you probably won’t need those federal protections.
I was also hesitant and didn’t refinance my student loans for an entire year, costing me quite a bit of money for no real good reason. I eventually ended up refinancing my student loans twice. First with SoFi at a fixed rate of 4.3%. Then with CommonBond at a variable rate of 1.93%. Both companies were great and helped save me thousands of dollars in interest.
If You Have A Good Income, Don’t Think It Means An Easy Road to Debt Payoff
I hear this a lot from people when I tell them that I paid my student loans off quickly. “Oh sure, if I made what you made, I’d easily be able to pay my student loans off too.” Make no mistake, if you want to pay off your student loans, you have to have the income to do it. If you have a ton of student loans and not enough income, you just won’t be able to make a big dent in them.
But having a high income in itself isn’t enough to pay off student loans. It still requires discipline. When you’re making a lot of money, its easy for that money to just slip through your fingers. You get caught up in the lifestyle, and before you know it, years have gone by and you still owe the same amount of money.
If you fall into this trap, what happens? You’re now stuck, forced to keep earning the income to keep up with your loans and your lifestyle. That’s probably why you see a lot of lawyers and other high income earners in debt. If a high income was all it took to pay back your student loans, you’d see everyone doing it. But the fact is, that’s just not what you will see.
Understand That Your Income Is Not Guaranteed
I’ve mentioned this before, but don’t treat your income as a certainty. Even if you are comfortably managing your student loan payment now, you never know what tomorrow might bring. That’s why I recommend paying off your student loans as fast as you can. It’s a great form of insurance in the event that something happens that reduces your income. You can almost always make enough money or adjust what you spend to pay for your current expenses. It’s a lot harder to make additional money to pay for your past expenses as well!
Don’t Let Your Student Loan Debt Trap You
The equation to paying student loans is straightforward. Spend less than you earn. Use as much of the remainder to pay off your debt. That’s really all there is to it. But just because the equation is straightforward doesn’t mean its easy. If it were, we wouldn’t be here talking about it. If you’re in a position where you can pay off your student loans quickly, take it. Live on less. Stay motivated. You worked hard for your education. Don’t let your student loan debt trap you. I know I didn’t let it trap me.
Thanks for reading!