5 Tips for Managing Student Loan Debt
*Please welcome our guest writer, Jeff, an STS-affiliated Certified Financial Planner. Jeff has generously offered his time and expertise to the blog and I am happy to share another one of his articles with you today!
Consensus among economists and policy makers has become elusive in a hyper-polarized political climate. However, there is near unanimous consensus that higher education provides the surest pathway to upward socioeconomic mobility and long-term wealth generation. Consequently, parents, guidance counselors, and teachers have been advocating for young adults to go to college for many generations. In recent times, this fundamental pathway has become significantly riskier. According to the Consumer Price Index maintained by the Bureau of Labor Statistics, the cost of attending college increased by a staggering 62.7% from 2006 to 2016. Consequently, overall outstanding student loan debt in the United States grew from $545 billion to $1.47 trillion.
If you are like me and were faced with the challenge of figuring out how to pay your student loans, we are not alone. I fully understand how confusing, stressful, and frankly annoying student loans can be. That being said, those feelings will not go away until you pay them off or, in some select circumstances, figure out how to get them absolved. Here are 5 tips to help you manage your student loans:
1. Understand your loans
The first step in managing your student loans is to really understand them. Doing so is vital because you cannot rely on simply calling the company that services your loans for information. The minimum information you need to understand about your loans are:
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Servicing company
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Total loan balance
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Interest rate
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Payment options
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Minimum payment
*Tip: I suggest making an excel spreadsheet with this information that you can update and refer back to regularly.
2. Don’t Panic!
I vividly remember staring at the spreadsheet I made to track my 3 student loans. I was 4 months into my first job and barely getting by even before I had to start making payments on my loans in 2 months. Unfortunately, worrying about how I was going to afford the payments didn’t make them go away. You may be dealing with or will have to deal with a different situation like unemployment, health problems, or unexpected financial challenges that make you want to panic. Please know, you are not alone and there are options for managing your loans. Depending on what kind of loans you have, you may have the option to defer making payments or to choose an income-based repayment method. But beware, interest typically accrues during deferment and some repayment plans may significantly change how long it will take to pay off your loans. Regardless of what solution that you end up choosing, make sure that you remain calm about your student loans if you are faced with a difficult situation.
3. Maintain a low-cost lifestyle
Ramen noodles are really, really good…says no one. The reason that most people go to college, work their butt off, and live a bare-bones lifestyle is to afford to live better. Unfortunately, graduating and getting a job doesn’t mean that a new life begins. It simply means that your income and expenses go up simultaneously. The best way to make sure that you are on the winning end of this push-pull situation is to keep your expenses low.
There are a lot of great budgeting resources available that you can find with a simple Google search. That being said, a budget is useless if you do not make the proper macro level spending decisions. Allocating the right amount of income to pay for large expenses such as rent, transportation, and travel will make-or-break your ability to pay back your student loans. To begin, figure out what your top 5 largest monthly expenses are and consider the options you have to keep them as low as you can. This may consist of having a roommate to share your rent expense, holding off on buying a new car, or limiting your travel to places you can drive to and stay with family. Keep in mind that these sacrifices are only short-term. Once your student loans are paid off, your additional discretionary income can be reallocated to these items.
4. Don’t tack on more big debts
When faced with any difficult situation in life, the first step is to make sure that you do not make it worse. This is especially true when it comes to difficult financial situations like figuring out how to pay off your student loans. In addition to your student loans, debt includes credit card balances, mortgages, car loans, and personal loans. The reality is that accumulating debt has a ripple effect on your entire financial future. Additional debt will negatively affect your ability to save and invest, it can lower your credit score, and it can be the source of financial stress on you and your relationships. You will be faced with tempting financial situations throughout your life. There will be a time when you can afford to purchase a home, new car, or pay for an extravagant wedding. That being said, that time will come only after your student loans are paid off.
5. Review your loans and payment plans (at least) annually
Benjamin Franklin’s famous saying, “if you fail to plan, you are planning to fail” applies to so many things in life. Having said that, it is particularly applicable to your financial wellbeing and overcoming financial challenges. The reason is because managing your finances is complicated and the variables involved change frequently. Consequently, it is important to review your strategy and progress regularly when it comes to managing your student loans. To do so, refer back to tip number 1 and update the facts and figures of your loans regularly. It is important to evaluate the impact your loan payments are having on your overall financial situation. You may find that you are able to make a few additional payments per year or maybe you are right on track. More importantly though, you may find that your payments are jeopardizing your financial wellbeing. Among the negative consequences to look out for are accumulating credit card debt, not being able to afford your basic needs, and feeling totally overwhelmed by figuring out how to make your payments. If that is the case, you should consider different payment options or try to find ways to lower the amount you are allocating to other expenses.
