Since I’m pretty busy being a Dad, husband, financial analyst, self-proclaimed contractor (that recently failed miserably with crown molding…), and a writer for other prominent blogs, sometimes I just can’t keep up. Today is one of those days. Luckily, there are tons of others that are kicking tail when it comes to their finances as well! Daniel has one of those kick-butt stories. Check out his debt payoff account below!
How to Get Rid of Student Loan Debt (6-Figures Worth!) In 5 Years
In the winter of 2011, I learned that the love of my life had over six figures of student loan debt. She was starting her MBA holding a bachelor’s and a master’s degree in engineering and entering the professional workforce. Both degrees came at a price.
In the process of earning her degrees, she had racked up nearly $120,000 in student loan debt by the age of twenty-three. Fortunately for us, I graduated with identical credentials and had only accumulated a mere $10,000 of student loan debt, mostly thanks to scholarships. While we both earned our MBAs, our student loan interest continued to accrue and our total burden of debt peaked in May 2013 to almost $150,000 – essentially the average American mortgage loan, without the house!
Not so shockingly, my now wife joined the growing echelons of students saddled with enormous debts after earning their degrees. If you’re looking to get rid of student loan debt, you’re definitely not alone, and if we can do it, so can you!
Our story of student loan debt is not unique
In 2016, 70% of college graduates exited school with student debt – totaling 43 million student loan borrowers in the United States. All of this debt in the U.S. totals $1.4 trillion dollars in loans, and it is growing at a rate of about $3,000 per second! Want some perspective on that? In the time that it took you to read this article so far (roughly 120 seconds), another $360,000 of student loan debt was added to that massive total…
The average 2017 graduate will leave school with over $37,000 in debt and an average payment of almost $400 per month! Of the students that graduate with secondary or professional degrees (such as doctors), more than half have over $100,000 in student loan debt and more than 30% have over $200,000 in debt. Year-after-year, these statistics continue to skyrocket, making a frightening situation for most young professionals trying to start their careers.
1) Understand Your Current Situation
Fast forward 5 years and as of May of 2018, we are now debt free and decided to share our story in a book with the world! When I first found out about my wife’s debt issues, I went into full on panic mode and started drilling her with questions. After about fifteen minutes, it was obvious she had her head in the sand about her loan situation. This is by far the most important step to getting your situation under control – figure out your state of affairs.
The first thing we did was spend an entire weekend combing through her eight different loans to figure out loan sources, principle and unpaid interest, interest rates, fixed vs. variable loans, and general repayments terms. Only with this knowledge were we able to assess the situation and create a plan.
If you truly want to get rid of student loan debt, DO NOT SKIP THIS STEP! Before you can start your get-out-of-debt travels, you first need to know where you are on the map.
2) Create the Dreaded Budget
Next, we created an old fashioned budget. Except in this version of a budget, there was one ginormous line item under expenses labeled ‘minimum student loan payment.’ This served two purposes: it forced us to look hard at our spending habits and it showed how much money we had at the end of each month after all expenses including student loan minimums. This magic number was the amount of money we could pay extra each month to aggressively crush our student loan problem.
3) Set a Goal
The third part of our strategy was to set a goal. One that was tough, but realistic. For us, that meant eliminating nearly $150,000 in less than 5 years while getting married, buying a house, and living our lives the way we wanted. This was an extremely lofty goal, but one that we were able to crush thanks all these actionable steps (that I’m sharing with you now!).
Using publically available calculator tools (like Derek’s amazing Debt Snowball Tool), you can determine the monthly payments required to meet your goals. This is called an amortization table. Before executing on this plan, you have to tilt the odds in your favor by any means possible.
4) Loan Consolidation
One of the helpful ways to get rid of student loan debt is via a beautiful thing called loan consolidation. (A Note from Derek: Most of the time, I’m not a huge fan of loan consolidation. There are seemingly more crooked companies out there than good ones, and most are just focused on extending your terms to lower your payments, which does absolutely nothing for you if you’re looking to pay off your debts sooner. More often than not, it’s better to just roll up your sleeves and tackle your debts smallest to largest until you’ve killed them all!)
Once you have graduated and have a job, showing an income and having credit will do amazing things towards your loan terms.
- For public loans, you can automatically consolidate all loans into a monthly automatic payment and get a 0.25% reduction on interest.
- For private borrowers, showing your income and credit could dramatically reduce your interest rates.
My wife had some private loans that were over 10% and she was paying $10,000 a year in interest alone. After graduating and consolidating her loans through Wells Fargo, we reduced this interest rate to 5%, a huge savings.
Lastly, you can even re-consolidate some public loans into private loans at a lower interest rate. We used a company called SOFI to take my wife’s 6.5% public loans down to 5.1%. These changes might not sound huge, but it means the difference of paying thousands less in interest every year. It could be the difference between meeting your goal and not.
5) Take Action
The last part of our plan to get rid of student loan debt was to take action. Once you have determined your loan and budget situation, reduced your interest rates as low as possible, created a budget, and determined how much extra you can pay a month, you finally are able to execute on a plan. If the monthly payment goal you established creates a mismatch from the net income your budget allows, you have four choices.
- increase your income (side hustle),
- cut expenses,
- reset your goals to be in line with your situation, or
- employ alternative solutions.
The last option includes forbearance, flexible repayment plans, or forgiveness options, such as the Public Service Loan Forgiveness (PSFL) plan. Depending on your life choices, there are numerous options to employ to lessen or eliminate your loan burden.
Public Loan Forgiveness Program
My sister for example, is a pathologist and employing the Public Service Loan Forgiveness (PSFL) program to get rid of student loan debt. This program will forgive all public student loans for those doctors that work for a qualified employer (most non-private practice facilities). Since she will be spending 6 years in residency and fellowship, she just has to be sure to commit to being employed by a hospital, rather than private practice, for her first four years of practice. In addition, by pairing this strategy with the Pay As You Earn (PAYE) program, it allows lower income workers to cap their loan payments at just 10% of their discretionary income and never more than the minimum 10 year repayment plan. This is generally a fraction of the overall payment for high debt borrowers.
Do You Qualify? Is It Worth It?
Most residents will qualify for this program if they have significant debt levels. After 10 years of very low payments relative to the borrowers overall debt burden, the remaining loan balance will be completely forgiven! This is one of many forbearance, flexible repayment plans, or forgiveness options that can be employed to lessen or eliminate your loan burden.
(Another note from Derek: Sorry Daniel…I keep butting into your story… For all of you that are thinking of using this option, be sure to weigh the difference between your student loan balance and the decreased wages you’re earning from working in the public sector vs. the private sector. In other words, if you currently earn $40,000 in a public job, but could work for a private firm and earn $70,000, and your student loan balance is $50,000, it would make absolutely no sense to give up $30,000 a year for 10 years (acchhhmmmm…which is $300k!) to get a $50,000 loan forgiven.)
If you are yet to complete your degree, alternative schooling options, scholarship opportunities, and a host of other methods can also help you avoid debt before you get into it in the first place!
Your Options Are Many! Take Action and Get Rid of Your Student Loan Debt!
While student loans can be a significant burden for many graduates, if you understand your goals and your entire loan situation, you have numerous options at your disposal. Eliminating this burden will allow you to live your life that you sacrificed years to have! It’s time to get rid of student loan debt once and for all! You can do it!
Blog Post by Daniel J. Mendelson, CEO and author of BYE Student Loan Debt
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.