It’s graduation season. Every night on the news I see highlights of the commencements ceremonies of all the local colleges. Shout out to all the new Temple University graduates. Welcome to the alumni club. I can’t believe it has been over 10 years since I graduated. Time flies!
I think most graduates are like I was. Meaning, most graduates are coming out of college with student loans. Before many of them even have jobs or their own residence they have student loan debt and bills that have to be paid. The average student loan debt owed for 2013 grads is $35,200. That’s more than double the average when I graduated back in 2002 $16,928. However starting salaries have gone up too. Now they are about $44,000. When I graduated I think they were around $30,000. (These numbers are from Google searches so what you find could be different)
I was definitely average when it came to student loan debt, owing about $16,000. But I was not average when it came to paying them off. My loan payments were amortized over 30 years. Meaning the payments being requested of me would be due every single month for the next 30 years. I would be 52 before I finished paying. I would finish paying off of my loans just in time to start paying my future kids tuition. This did not sound joyful to me. So I decided, nix this 30 year plan. I’m paying this off in no more than 10 years, I thought. And I did it, well almost. I paid off $16,000 in student loan debt in 10 years and four months, that is 19 years and 8 months ahead of schedule.
While I don’t think I was average when it came to paying off my loans I don’t think I did anything all that extreme or anything that others could not do. There really is no magic formula for paying off student loan debt. But I will share what I did. Hopefully I can give you some ideas that will help you pay your loans off a little faster.
- Know how much you owe. I had multiple loans. I had PA state loans, Federal subsidized loans and Federal un-subsidized loans. I added them all up to know exactly what I was dealing with. That initial number was a bit sobering.
- Consolidate at the best rate. I did not consolidate my loans right away. But I was paying attention to what I was hearing in the media and as soon as I heard that Federal Loan interest rates were going up I consolidated and locked in at a lower rate. Now I don’t know that I got the best rate as I did not do a lot of research. But you should be smarter than me. Do a little research and get the best rate you can.
- Take advantage of discounts. When I consolidated I was given the option to sign up for automated payments. By signing up I was guaranteed a lower interest rate. It may have been a quarter or a half of a percent lower. This does not sound like a big discount but it meant more of my payment was being applied to the principal which equaled a faster payoff.
- Don’t miss payments. I did not miss a single payment during those 10 years. I know that is a huge blessing but I really advise you to do the same. I know you can postpone your payments if you go back to school or if you are unemployed. However, I would strongly recommend you continue to pay, if possible. When they postpone your payments they are not postponing the interest that is being applied. Your loans will be growing instead of shrinking.
- Pay more than the minimum. Because my loans were amortized over 30 years my monthly payment was pretty low. I liked it like that because on lean months I could still afford to pay it. But most months I was able to pay more. Often I paid as little as $5 or $10 more. Some months I was fortunate enough to send in a double payment.
- Make large extra payments at tax season. This goes along with paying more than the minimum. Each year I typically get a tax refund (for you financial gurus I know this is not the smartest way to do things but I like the big lump sum). I would usually take that tax refund and apply maybe up to 25% to my student loans. Those large payments would often be 3 or 4 times the normal payment. 3 or 4 times the normal payment for 10 years easily cut 30 to 40 payments or 3 or more years off of my loan. It really was not that painful either because I always set some of the refund aside for fun as well.
- Don’t spend coins. Whenever I would get change back from a purchase I’d put all of the coins and sometimes one or two singles in a piggy bank. I never used that money. When the piggy bank was full I’d take it to my bank and deposit it. I remember one time it was $140. I took that entire $140 and applied it to my loan. This was money that I did not miss.
- Keep your living expenses low. I know a lot of people cannot do this but I moved back home after college. I was able to because my parents are awesome and we get along well. I did pay them rent but it was less than a normal rent. This allowed my income to go a lot further and it helped me to make bigger loan payments. My parents did not give me money for college nor for repaying my loans, but allowing me to live home those years at a discounted rent was a huge help.
- Delay large purchases. I did not buy a car until I had been working and saving up for over 3 years. Not having a car note those years also aided me in making those bigger loan payments. I was able to do this because I live ina big city, Philadelphia, with pretty reliable public transportation. While I could not imagine going back to the bus now, waiting those few years gave me a really good start on my student loans before I added in other bills like the car note, insurance, car maintenance, and fuel.
- Live below your means. I actually could have done better with this but I did make an effort. I tried to spend less than my pay check, leaving me with extra money. The more dollar dollar bills I could save the more I could apply to the student loan. I did things like kept a budget (though I did not always stick to it), brought lunch to work, and used the library instead of buying books to save money.
*Only borrow what you need. It is tempting to use whatever they will give you to support your lifestyle of choice. But remember you will have to pay it all back.
*Make payments as you go. Every month I'd get these letters saying "this is not a bill". The letters would be the details of the the amount of interest that had been applied to the loan. Interest that would be added to the amount I'd borrowed. Interest that I was responsible for paying back. I really really wish I would have sent in as little as $10 a month while I was in school. That would have been $480, plus interest, less dollars to be paid back.
* Pay for what you can while you are in school. I took a couple of summer classes when I was in school. While it was a bit of a challenge to save up on my student worker salary. I paid for each of those summer classes out of pocket. That saved me over $2000 in student loans.None of the things I did were all that extreme. In the 10 years it took me to pay off the loan I went on vacations, I had dinners out with friends, I gave gifts at Christmas and birthdays, I went shopping, I took care of pets, and I did eventually buy a house and a car. I made the sacrifices listed above but I also enjoyed myself. I think others can do what I did and get done their student loans a little faster.
Do you have student loans? What tips do you have for getting them paid off early? Which of the tips I listed above would fit your lifestyle?
