I can’t tell you how elated I felt when I made my final student loan payment. I felt like jumping up and down, screaming with joy into the silent wind, or throwing myself a party. I did none of the above, but I did post about my accomplishment on Facebook (see below).
Just about a year ago, I was swimming in about $12,000 worth of student loan debt. That’s very little in comparison to some of the horror stories I hear about with individuals drowning in $100,000+ worth of student loans. I was just swimming in mine, and comfortably staying afloat. But considering that I had been paying on them for several years straight, I couldn’t understand why my balance never seemed to go down.
In all, I had taken out about $15,132 in student loans to finish my Bachelor’s degree beginning in 2008. All of the loans were federally-backed, Stafford loans at 6.8% APR, provided via the same banking institution and managed by Nelnet. Luckily, I didn’t have the horror of trying to manage several student loans coming from several different banks. I deferred my loan once, and had applied to lower my payment at least once. Even still, I felt my payments were not chipping away at my debt.
I’ve come to realize that student loans aren’t designed to be paid off. It’s not like a mortgage which has an end date. If you borrow $200,000 for this property at 4.5% interest and make this minimum payment, your house will be paid off in 15, 20 or 30 years, however long your mortgage is for. There is an end date in sight. Student loans aren’t designed like that. I had no idea when my loans would finally be paid off. Not having an end date makes it harder to bring the loans to conclusion. It’s all psychological. You assume there is an end date buried somewhere in that student loan paperwork you signed, and somehow if you keep paying, you’ll eventually get to it. But when you’ve taken out $50,000, $100,000 or even $200,000 in student loan debt, getting to that end date might literally take the rest of your life. And the student loan financiers are just fine with allowing you to do that. They are designing student loans as debts that never go away. That’s why they are so dangerous, so financially strangling. And why I needed to remove this collar from around my neck.
I decided to make huge chunks, instead of relying on minimum payments to help me eradicate the debt. My tax return, work bonuses and savings were used to help me eradicate the debt within a year. I also paid off 1-2 loans at a time; in all I had four separate student loans managed by the same company. It was difficult to take large chunks of money from my bank account to pay off loans with, but I had to convince myself that the sacrifice was the “smart” thing to do. I did so by promising to pay myself back. If I spent my whole tax refund on student loans, then I will pay myself back that money over time. I made a promissory note to self, instead of to the student loan company. And as one loan was paid off in full, I was encouraged and excited to pay off the next.
In all, I paid $22,200.01 to pay off $15,132 in student loans– that’s actually a margin of almost 50% interest, not 6.8%. Once I realized just how much I’d paid, I couldn’t believe it. It’s almost as though I’d received a payday loan instead of a student loan.
But not everyone is fortunate enough to have work bonuses or nice tax returns to funnel toward their student loan debt. I did consider some alternatives to helping me eradicate this debt.
1) Moving the debt around.
I had a car that was fully paid for. I considered taking out a loan on it, using that money to pay off my student loans. When I say “loan,” I don’t mean a title loan, I mean going to a bank and getting a traditional car loan with low interest. It’s better to have a car note with a 2.5% interest rate than a student loan at 6.8%. In addition, if I ran into financial problems, I could eventually get over the negative mark left by not paying my car note; I would never get rid of the student loan debt. Another alternative would be taking equity out of your home, if you’re blessed enough to own, or a personal loan.
The point is to move the loan from a debt you can never get rid of, to one with a better interest rate that you could get rid of if you hit hard financial times.
2) Sell, sell, sell.
I had a lot of stuff just sitting around my house, including an extra vehicle. I could sell items to help eradicate my student loan debt. I don’t think I could’ve sold enough to cover the entire debt, but I may have raised about $4,000, which would’ve been a sizable chunk.
3) Small business income.
You may work, but you should always keep a small business on the side. I keep this blog, and have had other side businesses. Clearly, none have been a success or I wouldn’t still be working. But the negative income from business expenses is sub-tractable from my work income, which can result in a tax refund. Now of course, I could’ve just saved the money from my income in an account instead of putting it into a stagnant business, but I’m not the best at saving. Getting the funds back in one, large IRS check is almost like a savings account that I can’t touch, and it allows me to pay off larger bills like student loans.
Student loans can be refinanced. If you are paying above 6% interest, you may want to consider refinancing into a lower-interest rate student loan. That could really help alleviate high minimum payments, or help you pay off the loan faster.
5) Avoid student loans.
If you’ve already taken them out, this advice is too little, too late. But if you are considering student loans, don’t. There are alternatives if you are unable to afford college. Start at community college, take out grants, work, and pay for it. Then transfer to a four-year university. I know hard-working students don’t want to consider community college. I was that student as well. I took honors and AP classes in the hope of getting into my dream school and going to community college seemed like a step back. It may seem that way, but it’s actually the smart path. You can still get into that dream school, but instead of going straight away, defer your enrollment for a year (most schools will allow this), and complete transferable classes at a community college. Then go to your school of choice.
In addition, pick a school that is affordable, and pay for it. Most states schools are half the price of private schools. It’s better to take semesters off to earn money to pay for college, then graduating $60,000 in debt. Trust me. You just have to be disciplined enough to save money earned and go back to school and finish.
Lastly, pick a major that is going to employ and pay you enough to pay back any loans you do take. I’m sorry, but if are a photography major, going to a high-priced art school, you are unlikely to be employed in a job that will allow you to pay your student loans. In our current economy, students should only take out student loans for technical or business-related degrees. A degree in “Gender Studies” is not only unlikely to land you a job, but it is also unlikely to land you a job that will pay you a good salary. Currently, most students graduate with degrees in the Social Sciences; there are just not enough high-paying jobs in these fields, added to the fact that many will require an advanced degree (requiring more student loans). I earned a soft-degree as well, English. I didn’t have this great appreciation for the written word or the desire to teach, I was just trying to avoid math. Luckily, I’ve gotten into a more technical field, so it’s paid off. But I think I’m more the exception.
Paying off student loans can seem insurmountable. The President and First Lady Obama didn’t pay off their student loans until he entered the senate, so you’re not alone. But if you are going to be successful at paying off the student loan, you will need to be disciplined and creative when it comes to paying it off quickly.