Do you look back sometimes and wish you didn’t take out so much student loans?
Most of us think of student loans as a form of investment for our future and that’s why we don’t hesitate to sign the dotted line.
Hey, you can pay it back later when you get that high paying job right?
It is too easy for most students to accumulate a large sum of student loans and not think twice about it. I know…I was one of them.
Know The Basics Of Your Student Loans
Before you start paying back, you need to have some basic understanding of your student loans, your interest rates, and if paying everything off right away is even a smart choice.
I graduated with $130,000 in student loans and worked 2 jobs to pay it off in 3 years. I really think it was closer to $150,000 between grad and undergrad but my loans were all over the place (I went to 3 different schools).
I worked hard and paid off my loans aggressively. My only goal was to pay it off as fast as possible. I didn’t even know what I was doing.
But knowing what I know now, I wish I had taken a different approach.
My interest rates were very low. It would have been a smarter choice to use my money to invest in real estate and money market instead of trying to pay everything off so quickly.
Can’t Find a Job After Graduation?
I was lucky enough to find not one, but two good paying jobs. Not many of us can say the same thing. If you’re having a hard time finding a job after graduation, then continue reading to find out what to do next.
Deferment or Forbearance
Deferment or forbearance allows you to temporarily stop making your federal student loan payments or temporarily reduce your monthly payment.
With a deferment, you don’t have to pay for interest. However, with forbearance, you are still responsible for interest that accrues during the approved period.
Income-Based Repayment (IBR)
As the name suggests, IBR allows you to pay back your federal student loans based on your income rather than how much is owed. IBR plans generally cap the loan payments at 10 percent of your income. The deferred interest will continue to accrue and the balance will keep growing.
What does it even mean?
Let’s take a look at the example below. To make it simple, I will not even use compounding interest.
In this example, your starting student loan balance is $100k with 5% interest rate and your yearly income is $20k.
$20k (income) x 10% (of income) = $2k (what you pay towards student loans in a year)
$98K (remaining balance) x 5% (interest rate) = $4900 (interest accrued after 1 year)
$98K + $4900 interest = $102,900 (new balance after paying $2k).
You see how you actually ended up with more than what you started? Even after paying for some of it. The actual number is actually even higher than this example because of compounding interest.
Income-Based Repayment (IBR) Forgiveness
The balance of IBR is forgiven after 10 years if you work for the government or a nonprofit and 25 years if you work for profit. If you’re able to find a job working for the government and nonprofit, your loan is forgiven after 10 years.
What a great deal right? But don’t get too excited just yet.
Remember the example above? How you ended up with more than what you started with?
Every year, you will end up with more than what you started with if you’re just paying the bare minimum. It continues to grow for the course of 10 years.
Let’s talk about taxes. Your balance on your student loans is now treated as a taxable income when it’s forgiven. In other words, they “forgive” the loan, but you still have to pay taxes. Do you have $30k-$40k extra laying around for it?
You have to pay one way or another. That’s why it is important that you understand what you’re getting yourself into.
What About Private Loans?
Student Loan Financing
You don’t have as many options when it comes to private loans as compared to federal student loans. But there are still things you can do to help manage your private student loans.
Instead of having multiple payments, you can consolidate it into one payment. A lot of my coworkers did this to lower the life of their student loans and to help reduce the interest rate.
You can check out SoFi (short for Social Finance). They offer refinancing and consolidation for both federal and private student loans with fixed rates as low as 3.50% and variable rates as low as 2.23%.
I did not go this route because I knew from the beginning that I wanted to pay it off within 5 years and my interest rates were so low (less than 1% – I don’t even know how). It wouldn’t have benefited me to refinance.
What works for one person might not work for someone else.
If you’re looking to refinance, check out SoFi and get $100 for signing up using this link.
How To Help Pay Off Your Student Loans Faster
Call me paranoid, but I was so afraid of losing my job that I got 2. I was lucky enough that my bosses at both jobs worked with my schedule.
It’s always a good idea to have a backup plan – whether it’s a side hustle to earn extra cash, cook at home, pay more when you receive a bonus, etc. Always be prepared because you never know what will happen.
Here are some things you can do to help pay off your student loans faster:
1. Set up an automatic payment
Most lenders offer a rate reduction of 0.25% when you set up your monthly payment on automatic. It costs you nothing and you get 0.25% deduction. Not to mention that you will not miss a payment by doing this.
2. Pay More than the Minimum
It goes without saying that you must pay more than the minimum if you don’t want to spend the next 20-30 years paying for student loans.
I was able to pay extra by getting a second job and used my tax return money for it every year. There are so many creative side hustles you can do, thanks to the Internet. I will cover more of that later in this article.
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3. Get Cash Back with Ebates
Ebates is the largest cashback website with over 2,500 brands such as Walmart, Groupon, Macy’s, Sephora, Amazon, TripAdvisor, and many more.
Ebates is very simple to use and you can get up to 40% cash back. All you have to do is shop through their portal on Ebates.com or the app. If you’re worried that you might forget to use Ebates when shopping, then just download and install Ebates browser extension.
You can click here to read on how I got $125 cash back. It’s really free money that you’re throwing away. You also get a FREE $10 Walmart gift card for signing up today!
4. Cook More / Stop Eating Out
We all know that eating at home is better for both our body and our wallet, but most of us don’t have the time or at least we think we don’t anyway.
Another common excuse is “I don’t know how to cook”
Let me introduce you to Instant Pot. This thing is amazing and a life saver!
With over 31,00 reviews and 4.5-star rating on Amazon, you really cannot go wrong with this.
It can serve as a rice cooker, slow cooker, pressure cooker, steamer, food warmer, yogurt maker, and sauté. It is especially awesome for someone living in a dorm, on an RV or traveling.
If you want to cook healthy food fast, you have to give Instant Pot a try.
5. Set Goals / Start a Budget
I didn’t use any budgeting app back then, mainly because I didn’t think I needed one. I started using both Mint and Personal Capital to see what all the hype is all about with budgeting apps. So far I like Personal Capital a little bit more – will definitely do a review on them later on.
I always thought I was really good with my money and didn’t need some app to tell me how to spend/budget my money. Let’s just say I didn’t know I was spending so much money on food eating out and there is so much room to cut down on it.
6. Side Hustles
I was always a fan of side hustles but I just didn’t even know I was side husting. There is something about earning extra money outside of your normal daily job that is just so exciting.
There are so many ways for you can earn money on the side – thanks to the Internet.
You can earn extra money by taking surveys, watching videos, playing games, and shopping online with InboxDollars, Survey Junkie, Swagbucks. Click here to read a full list of survey sites you can sign up for to earn extra money.
Do you have a big student loan debt? What are some ways you are using to pay off faster?
This was a really good post, I read it top to bottom! I’m down to my last 4 student loans that are around $18K. I cut back on my 401k contributions and savings contributions to fluff up my payments. Any extra money goes straight to my loans!
Thanks Dyana! That’s exactly what I did. I scaled back on my 401K contributions so that I can pay off my loans fast. It will be such a great feeling once you’re done with your last 18K!
This is a great post! I finished my first year of college in May and I finished paying off my $18k of loans this week. Unfortunately, my school just doubled the amount of loans I’ll have to pay for the next couple years (36k instead of 18k). Do you have any advice for students paying off their loans while still in school so that the interest doesn’t build up? Thanks!
36k per year? Is it just tuition or room/board also included? If you’re just starting your second year of college, I would recommend taking as many classes as you can at a community college. It will save you so much money down the road. When I was in college, I had friends that took classes at community college and classes at the university (the ones not offered at CC) at the same time to save money.
No interest while in school if the loan is federal. Are you taking out private loans? I know with the whole COVID situation, a lot of lenders are not asking for payments, so you should definitely call your lenders to find out more. Take advantage of the workstudy money, it was $4,000/year when I was in college and I just had to “work” at some office on campus. I just used that time to study.