How to Tread Water When You’re Drowning in Student Loans
Let me start by saying, student loans are the bane of my existence as both a college graduate and financial planner. I hate them with every fiber of my 5’3” being. I want to talk about student loans as much you do. They are as fun to discuss as politics will be at your family’s Thanksgiving. But please, by all means, continue reading this article because I’m trying my best to make this tolerable!
My parents are two hard working middle class people who wanted nothing more than to send my sister and I to good schools and watch us soar. They are a product of a different generation. A generation where my Dad was able to work through school, and pay for his college degree rather quickly.
Times have changed, and in the past 30 years the cost of college has risen four times faster than the Consumer Price Index. FOUR TIMES FASTER. So the next time a baby boomer says, “I worked my way through college, you lazy Millennial!”, simply respond with “Shhhh Grandpappy, Go back to reading Breitbart.” Working through school is great and necessary, but chances are it won’t come close to paying for all the costs of a four-year degree. And in comes our hero: student loans! Hooray! I hope my sarcastic tone is apparent.
If your parents were anything like mine, sending your kids to college was priority numero uno. My parents are happily married and both work full-time middle class jobs. Growing up we were not rich, but we also weren’t poor. My sister and I worked in the summers and I once saved enough money to buy a 1996 Nissan Sentra with subwoofers in the trunk for $500. I miss that purple glorified go-kart every day. Long story short: We did what we thought we were supposed to. Work hard, study hard, be good people. My grandparents even gave us savings bonds every holiday and birthday. Yet, somehow I ended up with a trash heap of student loans. So did my little sister. So did most of my cousins and friends.
Our story is the story of millions. I’ve played the blame game before. Some days I take full responsibility for my naivety in taking out student loans. Some days I blame a corrupt system. However, none of this is productive. The fact is, we have loans and we must pay them.
So if you are feeling helpless and drowning in the Sea of Sallie Mae, I hope I can provide you a few tips to keep you treading water. Remember, you are only several thousand dollars of the $1.2 trillion in student loan debt…see, that’s not so bad!
1. Get to Know Your Loans
Much like a date you never wanted to be on, you must spend some time getting to know your loans. Getting to know your loans is by far the most important thing you can do before you start repayment. Knowing the ins and outs of your student loans will enable you to make informed decisions regarding payment plans, consolidation, forgiveness, etc.
So how do you get to know your loans? Do this:
A. Calculate the total amount you owe. Follow this up with a good cry and screams of despair. Collect yourself and proceed to Step B.
B. Learn about each individual loan including the lender, balance, interest rates, terms, grace period, whether it’s federal or private, subsidized or unsubsidized, circumcised or uncircumcised. That last one was just to make sure you’re still paying attention.
C. Once you have completed Step B, you can begin researching your best repayment options based on the information you’ve gathered. (I know you want me to tell you whether you should consolidate or which loans to pay first, but the truth is I can’t do that unless I have all the details about your loan and financial situation).
D. Implement your repayment plan and crack a smile each month your loan balance diminishes.
2. Suffer in the Short Term
Please know the difference between what you want and what you need. Make the hard choices to cut down on your expenses, throw extra money at loans when you can, and in the long run you’ll be better off for it. I’m not saying this doesn’t suck, but it’s important to live as far below your means as you can while paying down this debt. Remember, transportation and housing are the two largest monthly expenses. Living with roommates (or Mom and Dad) and riding your bike to work may be horrible, but it could save you thousands! Short term sacrifice for long term gain!
Pro Tip: Don’t completely deprive yourself of pleasure when paying down debt. By all means, reward yourself occasionally. Science has shown spending on experience instead of material items will provide you greater happiness. Don’t buy those shoes, go jump out of an airplane instead!
3. Don’t Ignore Your Loans
You can’t pretend they don’t exist. There are options for deferring payments, but if you can avoid doing this please do. If you ignore loans you will have huge problems down the road. Default and delinquency can ruin your credit score and you’ll be forced to live with your parents FOREVER. Although, my Mom and Dad are convinced they are the best roommates on earth. If you are really down on your luck, my folks have a couple of spare bedrooms, a pool, hot tub, and sweet basement. Not a bad deal if you don’t mind my Mom walking into your bathroom/bedroom announced and my Dad singing Sinatra at 5 a.m. while he hammers away on a house project.
4. Don’t Let Loans Consume You
Stop. Take a deep breath. You’re going to be okay. I know I just said “don’t ignore your loans” but I also don’t want you to obsess over them. You still need to live your life. Set up an automatic payment plan, throw extra money at them when you can, and then go about living your life. Having a good financial plan in place will help you not to panic.
5. Redefine the American Dream
Who the hell decided the only version of the American Dream is purchasing a house in the suburbs, getting married, and popping out 2.5 kids by your mid-30s? I call bullshit. The American Dream is whatever the hell you want it to be. I have friends who are DEVASTATED they cannot yet afford a house, a new car, or a $50,000 wedding. My advice to them is, STOP CARING. Those are not measures of success. There are more than 40 million Americans with student loan debt. We are all in this together, my friends. Work as hard as you can to pay off the debt, but don’t feel like a failure because you haven’t “achieved” certain “milestones”. Focus on building your skills so you can get that promotion and make more money. Accept that renting an apartment with roommates is not a bad thing, in fact, for most it’s a necessity. Stop thinking that purchasing a fancy new car is a hallmark of accomplishment. Instead, when I see someone with a fancy vehicle, I think “Wow, what a shitty financial decision. I hope they know that shiny piece of metal will depreciate by 70% in the next four years. How dumb.”
I hope my ranting has inspired you. Student loans are incredibly complicated. I don’t have all the answers, but I hope this gives you a metaphorical lifejacket.