8 ways to pay down student loans
The average student loan debt for a 2011 graduate is expected to be $22,900, the most ever.
The burgeoning student loan debt in the U.S. has caused some to wonder if it's a crisis in waiting. Some think the crisis is already here.
Student debt increased by at least 10% in each year of the first decade of this century, due in no small part to rising tuition costs, according to a Moody's analysis (.pdf file). The amount of Americans' student loan debt now exceeds the total owed on credit cards.
The average student loan debt for a 2011 graduate is expected to be $22,900, the most ever. And Moody's study suggests that those who entered college during the Great Recession and its lingering aftermath are increasingly likely to default. Those who do pay will have less money for other life pursuits, such as buying a home or starting a family.
It's scary stuff for new grads. But here are a few suggestions:
- Figure out how much you owe and to whom. Now you can budget appropriately and explore whether loan consolidation make sense. (That budget should include enough savings to build an emergency fund and money set aside each pay period for retirement -- at least enough to qualify for your employer's 401k match. Hey, no one said life after college would be easy.)
- Continue to live like a student. This tip -- my personal favorite and one I used back in the day -- comes from Deliver Away Debt, the blog of a guy who's made a name for himself by chronicling his pizza deliveries. Unless you've been using your student loans to live like a king, you already know how to be a pauper. That frees up more money to pay off debt.
- Avoid other debt. You're in no position to buy a house or a new car. If you need wheels for work, use that good credit you've established by paying your student loans each month on time to qualify for a used-car loan at the bank or credit union -- if you don't have cash for a car.
- Get a second job (assuming you have a first one). Jeff Kosolaat Deliver Away Debt said he made up to $1,800 monthly delivering pizza for 22 hours every week.
- Pay the student loans off as fast as you can, particularly if you have a high interest rate. You will likely have an option of several payment plans. However, less time means less interest you'll owe on the amount you borrowed. Just make sure that any extra amount goes to the principal and that there is no penalty for paying off the loan early.
- Find every advantage. If you can get a lower interest rate by setting up automatic payments, do it. Some programs reward a track record of on-time payments.
- Will your employer help out? Some private employers will help you with loan payments, so ask. Working for the government and in some other public service jobs may qualify you for loan forgiveness.
- Inquire about hardship status if you truly can't pay. Getting the debt wiped out is extremely difficult, but you may be eligible for deferment or forbearance. "Financial irresponsibility is not a legitimate claim for hardship status," Deliver Away Debt warns. Post continues after video.
Of course, the best way is to avoid over-borrowing in the first place. For instance:
- Limit your tenure in school. Rare is the student who can afford to dally, dragging out a four-year program into a fifth year or more. With careful planning and some high school advanced-placement classes under your belt, you can complete a four-year program in three years. (It wasn't fun, but I did it.)
- Attend a school that provides good financial aid. Rare is the student who pays the sticker price for tuition, but some schools are more willing to help out than others. (One reason I continue to donate to my alma mater each year is the percentage of the gift that goes to student aid.)
- Tap every resource. Lots of scholarships exist. Apply for the ones whose criteria you meet. And if Grandma or a well-off childless aunt wants to help out with expenses, let her.
- Use the student loan money for what it's intended. I know someone who borrowed to the max to fund an adventure living abroad after the overseas study program had ended. Last I heard, bill collectors were still hounding him.
Why should you repay the loans, you might ask. Answer: You have to. Student loan debt can't be discharged in bankruptcy. One way or another, your creditors will get their due -- garnishing your paycheck, taking your tax refund or taking you to court.
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You mentioned getting through school as quickly as possilbe. Here's another tactic. WORK your way through. My financing was with a credit union. I borrowed enough for a semester and then repayed that while I was going to school. It took me six years to get my BA, but at the end of it all, I only owed for my final semester which I paid off the following summer. Yes, it took longer to hit the job market, but I did it free and clear!
1. Get an internship/Co-Op: I'm in the engineering and manufacturing industry (probably one of the hardest hit industries by the economy) . I'm 25 and hold a full time job with a profitable company 90% of you have heard of. The reason? I landed a Co-Op during my college years that had me go to school one semester, work a semester, go to school a semester, work a semester, and so on. Not only was I making $12-$13 per hour, I got tuition assistance as well. I took online classes while working and was still able to get my B.S. in 4 years. Four months after I graduated, that company started hiring new engineers. If it was not for the contacts and networking I did during college (and the good work I showed), I may still be looking for a job or be part of the military (as suggested before).
2. Go to a cheaper school: My wife is a pharmacist. Her schooling was $40k a year, private. I went into Engineering/Manufacturing and mine was $7k a year. I debated other schools, but saved about $10k a year by deciding not to. Same degree, same accreditation, less debt. Private school shouldn't (and isn't) for everyone.
3. Get married: My salary pays the bills, my wife's paid off Sallie Mae in 1.25 years. Things are a lot easier when you have two paychecks coming in. Obviously, don't marry the first girl you see holding a diploma.
4. Keep you tuition to salary ratio low: Like I said before, my wife's tuition was $40k a year, but she also became a Pharmacist. There were people going to the same school to become teachers. NOTHING AGAINST TEACHERS! I have several teacher friends, BUT, face it, our schools don't pay Elementary teachers $100K+ a year. My school had a teaching program and was $30K less. Do the math.
5. Call Sallie Mae and tell them to break up your loan groups: Individual loans are grouped together. These individual loans can have multiple interest rates. We called Sallie Mae and had them break all of them part. Yes, we went from 6-8 payments to 16 or more, but we paid the minimum on the lower rates and paid off the higher rated ones first. I don't know how much this actually saved in interest, but I know it didn't hurt.
I'm not blaming people my age, and older, still struggling to pay off student loans. I know how much of a struggle it can be. My wife and I happen to be in a better position than a lot of post-graduate 25 year old adults, but I feel we did a lot of good things to put ourselves there. However, I wanted to explain that there are many things that can be done to help students relieve themselves of the student loan companies. Good Luck.
My wife graduated medical school with 250 K in loans. I graduated dental school with 250K in loans. She now gets a resident salary for the next 3 years of 45K/year.
Before people start crying about the current price of healthcare, realize my wife and I have half a million in debt before we even started working. That's a lot of money we need to pay off...now you might have an idea why healthcare costs are skyrocketing.
And by the way, these 8 ways/suggestions for paying down debt are completely worthless/common sense.
The laws regarding student loans are a violation of the "equal protection" clause. Any other debt can be dealt with through bankruptcy. Even tax debts can be paid off for cents on the dollar. So you get all this debt, trying to better yourself and contribute more to society and then can't get a decent job because they've all been outsourced to China or India -- even "professional" careers. Someone else gets an equivalent amount of credit card debt - borrowing for vacations, concerts, extravagent meals. Someone else builds up $60k in unpaid taxes. The fool spending on the luxuries he/she can't afford can wipe it out. The IRS will settle the $60k for $6k. The student loans? too bad. You have a mortgage for the next 20 years, with nothing to show for it but a piece of paper
Have you Mommy or Daddy be in Congress!! Then you do NOT have to PAY!!
The student loan balloon is full fledged! The more the government loans to students, the more colleges raise their tuition rates. Meanwhile, every other commercial is for some mail in college where you can get a worthless degree. When I see 3 new colleges pop up in a year in my city alone, it makes me think that they must be make some mega bucks (kind of like the mortgage companies and others involved made a ton of money).
I know the author of this article is not talking about students with a 4 year degree have an average debt of $22,900!!!! Where did she get THAT number???? More like $60,000, $80,000 and in some cases even over $100,000 in debt. That flub alone makes me realize she doesn't have a clue what she's talking about. I stopped reading after I read that amount. That is laughable!
Oh and that loan forgiveness for working for the government or service job does not mean you won't have to pay. I am in school now and working full time in a government job. The loan forgiveness means that you have to be employed full time in a qualified governement or public service job. You have to pay on your loan for 10 years. No defaults, you can't be late, any of that. If you pay your loans for ten years straight without defaulting, without being late, without skipping payments, THEN you will be forgiven the remainder of your loan. Which actually sounds pretty good IF you can keep from missing a payment for 10 years AND if you can keep your job for that long.
@ r (rb3868)
I completely agree! My first year out of law school was in 2008, and I was hired on as an attorney at a small firm for $40k/year. I ended up handling most of the bankruptcy cases for the firm because it was such a growing area.It was very frustrating that the majority of my clients came to see me because they had wildly overspent and lived far beyond their means for years. On average, the couples would have 10-20 credit cards, all maxed out due to multiple vacations, tons of shopping, and other extravaganeces. Meanwhile, I was driving an old car, had taken a low-paying position because I needed a job that paid something, had a roommate to help with the cost of rent, and lived as frugally as possible. These couples were able to discharge their debt, and it will be off of their credit reports before I'm through making my sizable student loan payments. I decided to take out my debt, just as those couples did, and I feel genuinely sorry for people who fall on hard times and need to use bankruptcy as their last hope. However, I do find it odd that you can go out and run up tens of thousands of dollars in unnecessary purchases and be put on a modified payment plan or have that debt wiped away fairly easily. Yet, student loans are nearly impossible to discharge.
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