According to the Mark Kantrowitz, a student loan expert, the average 2016 college graduate has over $37,000 in student loan debt. If thinking about that much money is a hard concept, here are a few things you could buy with that much money:
3,083 pepperoni pizzas
4,115 months of Netflix
15,879 Samuel Adams
The point is, with student debt, there is a lot less Netflix and chill.
Now try having $150k in student loan debt. Just to be clear, we are talking about $150,000 in student loan debt. That was not a mistake. I did not accidentally add a zero (believe me I wish I had). While marriage can bring you many amazing things (like love and attention and a Netflix Marathon partner), it also brings whatever baggage your spouse has. And my husband and I had plenty of baggage. What could be cuter than bringing $65,000 of student debt into a marriage? Having your spouse bring an additional $85,000. So there we were, riding high off of our wedding bliss, when I decided it was time to take a full inspection of our finances. Probably should’ve ridden that bliss a little while longer.
Now before you start ranting and raving that I should’ve done an inspection before we got married, I DID. I knew that he was sitting with a hefty amount of student debt. We had been living together for the last four years, so I was with him whenever he signed for most of them. But it wasn’t until everything was put onto one spreadsheet, interest rates and all, that I got to see that big $150k for the first time. Cue the pop of a wine cork.
Get all of your student loans down into one Excel sheet. I went through college constantly guesstimating how much I actually had taken out and how much interest I had accrued. There is a big difference in thinking you have “about $50k” and actually having almost $70k. Interest rates can be a real bitch to you when you’re distracted while studying philosophy (or probably downing another margarita). Had I seen how much I was getting charged per month while in school, I probably would’ve thought twice before booking that Spring Break trip or buying a third pizza. Since I am an Excel freak, I use the Vertex Excel Calculator and tweaked it for my exact situation. However, some of my favorite online Student Loan Calculators include Student Loan Hero and NerdWallet. Save those links down right now. Like right damn now. You can’t attack your loans at all if you can’t even quantify them.
So now that you have that magical total number in front of you, and I’m assuming at least a glass of Pinot next to you, what comes next? The next thing I did was look at the types of loans we were sitting with and the interest rates we were rocking. And let me tell you, it was quite the diverse portfolio. NOTE: if you can take out your loans with a solid co-signor, DO IT. It will help you qualify for better loan programs and lower rates. Unfortunately, one cannot always find someone with a great income to debt ratio and an amazing credit score to not only sign a dotted line but also have themselves held liable if you decide to skip out on your loans. The good news is that most people qualify for a decent amount of government loans. Between my husband and me, we had about $65,000 in federal loans. The rest of our $85,000 came from private loans that we had to go out and beg for ourselves.
Take advantage of every single federal program you can. Whether it is Stafford Loans, state grants, Perkins Loans, Parent Plus Loans, or industry specific loans, please take them. Not only does the government offer some of the lowest interest rates, they also have some of the best benefits. Not only do they have numerous ways to lower your debt, they have programs where some of your debt can be completely eliminated (based on your profession and income level). They also have some of the best programs that work with people who are struggling to make their payments, like payments that get capped based on your income level. While interest rates may vary year to year, the federal loans typically have some of the lowest. For example, here are the rates for the 2017 school year:
Okay so you have a ton in federal loans, but let’s not forget about their very distant cousins, private loans. Now all of my private loans were financed from a large, well-known brick and mortar bank. And at the time, I didn’t really care about the interest rates because I just needed the money to pay my tuition bill. But getting the full picture, man did I get taken to the cleaners. Rocking an almost 9% rate, I racked up a pretty penny while in school. It was definitely very hard to make the first few payment knowing they were all going to interest. And my husband? Well that cutie had rates that were just under double digits. Some from a large bank and one from a well-known student loan traps. Knowing that the interest rates were insane for any loan, I decided to shop around.
You are not married to the bank or institution that originated the loan. Once you graduate and start making money, you are a much more attractive potential borrower than when you were begging for money before undergrad. Chances are quite high that you could refinance your debt at a lower interest rate. There are a few things that will factor heavily into whether or not you will get a better deal. First, your income to debt ratio (outside of just your student loans). If you owe a ton of money because you bought a new car or racked up credit card debt, you clearly have less expendable money and it makes you a riskier borrower. Another big factor is your credit score. It truly baffles me how many people do not know their exact credit score, as I check mine all the time. While many credit cards are offering some sort of occasional credit checks, the best resource that I use is creditkarma.com. Knowledge is power, and knowing your credit score will be huge in knowing what you could qualify for and what type of loan you should go after. Which brings me to my next lesson.
No matter what Mom and Dad say, there are some great lending institutions that do not have a physical place for you to apply to. Want to know why so many online banks offer better packages, it’s because they aren’t saddled with all of the costs that the brick and mortar store down the street has. Not only do I strongly recommend using these new types of online lenders, I have refinanced my student debt through one of them. Check out SoFi for a totally different type of lending experience. I didn’t have to awkwardly sit in a room with someone filling out paper since the whole process was online. You can just upload all the documents they need right there. Plus they were able to look at my finances and give me a decision to see if I pre-qualified before they hit my credit score. Not only do I forcefully push all of my friends towards them, but even my employer offers special financing through them because of their reputation for being an established and responsible lender.
Just because someone finances your loan does not mean that they service the loan. Plenty of times a big bank will approve your loan, send you the money, and then all of a sudden you get an email from a weird named company demanding payments. Your heart races because you don’t know why you owe these creeps money. Then you realize that it is for the same amount of money that you took out for your student loans. That’s right. The bank can either sell off your debt or have another company go through the hassles of collecting the money for them. While this doesn’t seem like a huge deal, many companies that banks or lenders hire are not the most ethical companies. Many can hit you with high penalty fees for paying late. Some lenders will not send out reminders a few days before your loans are due. Some lenders have even been accused and prosecuted for their predatory practices to either make you slip up and pay more or directly deceive you into thinking your payment is handled with extra online screens before the payment is actually processed. While there are several court cases going on that will hopefully mediate these practices, make sure you look up the reputation of these servicers to make sure you do not fall for the same tricks. It may not be worth it to refinance just based on having a shady loan servicer, it is important to know the red flags to look out for.
Okay so now you know how much you actually owe, you broke them down into good and bad debt, you refinanced your bad debt into good debt, and are now working with an awesome online lender. Your newly structured bill comes in. Now what?
Automate everything! Almost every single lender gives you the option to set up an auto-debit from your bank account. Do it! Not only are you taking some stress off of yourself, but many times they will take off a certain percentage of your interest rate for automating (mine is 0.25%) . I cannot begin to tell you how much that 0.25% will save me over the life of the loan and the amount of late fees I am avoiding. When I first started paying off my loans, there were numerous close calls where I would remember the day of to hit the pay button. Of course this means that you need to make sure that you have the money in your account, but it should be there anyways. At least this way there is one less step in the process.
So now your payments are set up for your newly structured loans. It’s time to coast for the next ten to fifteen years, right? Wrong! It is so easy to get into the habit of paying what is expected and thinking that you are on auto-pilot for the next decade. This is exactly what they are hoping for you to do now that things are automated. But you need to remember that for most loans, there is no penalty for additional payments. And those payments will go against the principal amount of the loan (if you don’t still have outstanding interest).
While you might already be throwing yourself a pity party for paying hundreds of dollars a month already, you would be shocked at what the extra money each month can do. While it is true compound interest is an amazing thing in investing, it is the exact opposite for paying off debt. Even the tiniest amount per month can make a drastic change over the life of the loan. For example, I am required to pay $856 a month on my loans (this is after I organized my federal loans and refinanced my private debt). I automated my payments and could have just enjoyed what was left at the end of the month, but I instead chose to make a larger payment towards my loans each month. I pay $1200 a month towards my loans (an extra $344 a month). Thanks to my student loan calculator, I can see that not only will it push up my payoff time from ten years to six, but I also save over $6,000 in interest over the life of the loans. That is $6,000 that I save just by making an extra $344 payment each month for money that I was going to have to pay eventually. But it can be very easy to spend the money that you have in the bank account instead of applying it to your loans. So what should you do?
Have your savings account automatically take the extra payment out of your bank account the day that your paycheck hits your checking account. There is an important distinction between doing this and just having your student loan servicer auto debit your account with a larger amount. This takes the money out of the direct reach of your bank account and the threat of your debit card (although really you should be using a credit card for the points, but that is a whole different article). However, if something comes up in the middle of the month, and this is life so something shit just happens, at least you still have access to that money before it is applied to your loans. Nothing feels worse than when you’re accidently cash strapped mid-month because you were responsible and paid extra cash on your debt. And while it is true that you should have a rainy day fund that saves you from life’s unexpected moments, you would still have to replenish it with your leftover money in your bank account anyways. This eliminates the hassle of moving money around more than you need to and lowers the risk that you’ll take a little extra out of your rainy day fund than you need to. The same rules apply to your savings accounts as finding refinancing options. You will find much better deals from online banks. Now before you panic about some online bank holding your money, plenty of well-established banks have only online presences. For example I prefer the Barclay’s Dream Account because of its insanely high interest rate for their savings account of 1.20% (for comparison, most big banks offer .01%).
Okay so what I am clearly saying is that you have to take every single extra cent you have ever made from your blood, sweat, and tears and apply it to your student loans! And while you’re at it, you should just completely give up Netflix, having a social life, and any morsel of happiness.
Not only is this not feasible, but it will put you into a funk very quickly. While it is definitely true that you will feel very responsible every time you hit that button and put more money down, you feel the exact opposite when you’re low on money and everyone is at happy hour.
You need to build in a cheat month. Now many personal finance bloggers feel that you shouldn’t break your routine because it will feel easier to break again. However, I look at this just like I look at eating healthy. I can eat healthy during the week if I know that I can have a piece of chocolate cake on the weekend. But if I think that I can only have broccoli as a snack indefinitely, I am much more likely to drop the diet completely. Same goes for your student loan strategy. Come up with a certain amount of months to celebrate. For me, every six months that I consistently pay my goal on my student loans, I assess whether I want to blow it on something else. Chances are, when you drop that extra payment from your calculator, you’ll still think twice. But you should seriously do something great for yourself! Go to a nice dinner, buy yourself those new shoes, or take a small weekend vacation. You deserve it!
Okay so you’re a year into your journey. You are paying off extra debt and you have gotten to reward yourself twice now. Life is all good right? Well, yes and no. It is always important to reassess your finances. Chances are after a few years you are in a much better financial situation than you were a few years ago, again. You should always keep your eye on your income to debt ratio and what interest rates are doing.
Don’t forget that you’re not married to your second loan servicer either. Now I am not advocating that you refinance every single year hoping you get better offers. Not only is this a lot of hassle and paperwork, it will also hurt your credit score from getting hit so many times. However, after a few years you shouldn’t keep paying your loans with a 7% interest rates just because that was the best deal you got when you refinanced. If your income is much higher, your total debt lower, and you have a stronger credit history, your rates could be much lower. The amount you want to refinance is lower and so is the amount of time for paying it off, making you a less risky investment for the financer. Never just blindly accept the position you’re in because you’re too afraid or lazy to look around.
So now you are set. You can implement many of these strategies early and save yourself a lot of hassle and money. Don’t become a bitter postgrad who wasted many paychecks and opportunities just blindly paying student loans because you’re too afraid to tackle them. But, wait. Enjoy a bonus tip one me!
Get your friends on the same page! For a long time, I felt like I was the only one drowning in student loan debt. And I felt like I took many of those hard steps alone because, contrary to what the media likes to say about us whining and complaining a lot, we don’t talk about our finances with each other a lot. And that is a big problem. Many of us are inexperienced in being financially independent. We share so many things with our friends, like pictures of our dinners, intimate details of our dates, and our big aspirations for the future. Yet for some reason we are uncomfortable talking about the gaps we have with our handle on our finances. Guess what makes not being able to go out because you made an extra payment on your student debt easier? Staying in and watching a movie with your friends who did the same thing. If you get your financial shit together, then help your friends get to the same place. Offer to walk through their loans with them, send them the calculator you use, or even just send them this article to wake them up.
Remember, you’re the one in charge of your financial situation. You can either run and hide and hope it gets better, or you can crush it using some of these tips. Happy destroying from a less bitter postgrad.