Student loan debt is a common cause of financial distress for many college graduates. There are some ways to lessen the weight of student loans both before getting into debt and after.
College graduates walk away from college with a diploma and a weight around their neck called student loan debt. Students that leave school before graduation, only walk away with the debt. Popular wisdom is that it will take years and years, maybe decades to finally pay off student loans.
One of the worst things about student loan debt is that students who are accruing them rarely have prior experience in dealing with debt. Students are almost victims of the system in that they are sort of put on automatic to getting into the debt. The FAFSA data gets forwarded to lenders and all the student has to do to accept the loan is to sign for it. The government encourages and enables the process. There is not a step in the process where students are ingrained with the values of limiting the amount of debt they take on or any sort of urgency to break free from the bonds of debt. “Debt is bondage” – Suze OrmanDebt is bondage! -Suze Orman Click To Tweet
Student Loan Debt Seems to Linger for a Lifetime
College graduates take for granite and accept that debt will be a part of their life for the next decade or more after graduation. This does not have to be the case. Someone needs to stand in the gap for the student and help them understand the down side that having this debt will bring to their life. So many students are looking to others to make the debt go away after they acquired it. The natural process that drew them in does not provide a roadmap to get them out. Unfortunately, only the student is liable to meet the obligation.
Whatever phase of the student debt experience you find yourself, whether that is prior to getting into student debt, in school and increasing debt each semester, or a graduate looking for a way to get free from the weight of debt, I want to give you some hope and direction.
Sooner is better
Hopefully you are reading this before finding the noose of debt around your neck. If that is the case, take heed and let this be words to the wise.
It might not be possible to get through your college education without any debt, but at least make an effort to keep it to a manageable level. Only take out what you need to get through. It is not wise to live lavishly on borrowed money. You and only you will be paying back that debt. Well, I take that back. Possibly you and your future spouse will be paying that back. Oh and add your kids to that list of who will be affected by the debt you take on during school if you let it get out of hand. So, maybe you aren’t concerned about how it will affect you, but at least pay attention out of love for your future family.
If you are at this stage, it is the perfect time to gain an operational understanding of the principles of debt. There are a number of financial pitfalls waiting for you at college. Hopefully your parents can give you guidance, but increasingly across the country people of all ages are struggling with debt and finances in general.
Know before you complete the first loan application that you will have to earn that much money over and above your living expenses to pay it back. Search out and talk to college graduates who currently have debt and ask them what it feels like. I wager you will not meet anyone who enjoys the feeling of indebtedness.
Armed with that knowledge, you can make better decisions about choices along the way that will help you minimize the negative experiences of those that went before you. Sacrifices and living a frugal existence during college will have its rewards once you come out the other side. Apply for credit sparingly and only accumulate what you legitimately need to accomplish meaningful goals.
Student Accumulating Debt
It is very hard to graduate from college without debt. School costs have risen sharply over the years. Full ride scholarships and grants are hard to qualify for and only a few can go that route. For the rest of us, student loans enable our continued education.
If you are responsible for paying your way through school or have limited help from a source that you don’t have to pay back, control your spending as much as you can. You will be happier for it once the bills start coming in. Many students put the repayment obligation out of mind and spend like it is someone else’s money.
Overestimating the amount of pay you will earn after graduation causes many students to overspend, thinking it will be easier to pay back than it will be. It will be hard to pay back your student debt. Trust me when I tell you that. The less you pile up, the faster and easier you will get out from under it.
College Graduate With Student Loan Debt
After graduation is usually the time when the stress of student loans hits home in most cases. Some students take their first serious look at the amount they owe at graduation time. Lots of stressors accumulate around this time. Finals, meeting graduation requirements, social events, family members traveling for commencement and searching for your first post-college job all come upon you at once. It is a lot to take in.
You can likely defer repayment of most student loans. There are lots of qualifying reasons for deferment approval. However, the longer you delay paying your debts back, the longer it will take to get out from under them and the more you will spend servicing debt.
It is best to start paying them down as quickly as you are able. As soon as you start earning income and get settled into your new environment, you will want to establish a budget and live within its bounds. Even if you could qualify for a deferment, I encourage you to start right away paying down your debt. Each loan account that you close out will be reason for celebration! There is nothing like becoming debt free. Even if it is just one category of debt that has been eliminated, it is a great feeling. Establish that as a major goal with milestones of paying off each account. Then celebrate each milestone until you score the ultimate goal. For more thoughts on managing debts, see my previous posts If Your Out-go Exceeds Your Income, Your Upkeep Will Be Your Downfall!
College Graduate Who is Free From Student Loan Debt
Whew! What a feeling it is to see that final balance hit zero! Pat yourself on the back. Go celebrate and tell the people who care about you. They will be so proud of you. Earlier this year we celebrated my youngest daughter making that final payment. Many of her classmates and coworkers took advantage of deferments and paid as little as possible toward their debt to give them more cash for luxuries. Many of the so called luxuries they think they are enjoying are perishable. The debt and most importantly, the interest that they have to pay is so much more of a negative factor in my thinking than the value of the luxuries.
Leverage your success!
Once you are done paying down that debt, it is time to revisit the budget and proactively decide where that additional cash flow is going to go. Remember, a budget is telling your money where to go rather than wondering where your money went. The budget sheet looks so much better with those line items of debt missing from it. Choosing what items you want to put on your budget is a lot more enjoyable than having them dictated by the debt monster!
Remember the mantra from The Richest Man In Babylon, “A portion of all I earn is mine to keep”? Now you have the luxury of keeping more than ever before! To me, that is a true luxury. You can purchase nicer things that you could before and actually own them outright. Buying things that increase in value is called investing. Investing might be something new to explore at this stage. You can set money aside to make a down payment on a home. Having paid off your loans quicker than required, improves your credit rating. Now you will spend less on loans for things you really want. You are on your way to a happy and productive life!
Avoid Debt in the First Place
So, how do you avoid the debt in the first place?
Essentially, live within your means. Look for tuition and living expense assistance that will not require repayment. These come in the form of grants and scholarships. Exploit every resource to find grants and scholarships that you can qualify for. Start early and ask everyone you know about where to look and ask them who else to ask and ask them too. By starting early, you can position yourself to qualify for some that you might otherwise miss out on by being unaware of them when it comes time to apply. You might change the elective classes you take in high school or join some social organization.
Make Paying off Student Debt a High Priority
Why is paying off student debt a high priority? After all, college loans are just a part of life for most college graduates. The government encourages them with subsidies. There is a grace period before payment start and in some cases before interest charges kick in. Since the prime interest rate has been low during the past few years, student loan interest rates are relatively low.
However, debt is debt and it is not something you want to keep around forever. Having taken out the loan and paid them off has a good effect on your credit rating. Paying cash for college is very difficult to do if you do not have significant resources. Even with significant resources, many students opt for loans so they can use their cash for other expenses. The down side of these loans is that you wind up giving money to creditors that could have been used for other purposes. Making loan payments cuts into your lifestyle for years after graduation.
Make a plan
So, how do you go about getting it paid off faster? The short answer is by making it a priority. Once you have made your budget and met your basic need obligations, designate an amount of your income that will go to pay down debt. Stop accumulating debt and stack your existing loans in order by interest rate. Pay the extra amount that you have identified in your budget toward the largest interest rate loan first. Once that one is paid off, add the additional amount to the minimum that you were paying to that bill and get that one paid off. Continue until they are all paid off. Get a downloadable workbook to plan your path to being a debt free graduate from my post Launching A Practical Get Out Of Debt Plan.
‘Tis the Set of the Sails … That Determines The Goal
Read the poem in its entirety in my post How to Replace Consumerism with Proven Wealth Building Strategies. Assess the situation you are now in and determine your course going forward.
Begin with the end in mind. Start now, whichever phase of accumulating or paying down student debt you are currently in, plot your course for being a debt free college graduate. Be prepared to make changes to you financial habits in order to arrive at a better financial future.