I have student loans. I am just like millions of other young Americans who have to pay back student loans because I wanted to get a better education, and I wanted to get an advanced degree. There isn't necessarily anything wrong with that, but issues come up when people talk about having to pay them back. I am not going to discuss these opinions, but I did want to give you an example of how I plan to pay them back. I hope this is helpful for other people who are in a similar situation. Please feel free to share any comments or questions as well.
I have about $80K of student loans when I graduated. Looking at that number by itself, I was stressed, worried, and unsure if I would ever be able to pay it off. I knew I had to come up with a plan, and take each step one at a time. Once I graduated, my goal was to set up a plan to pay off my loans in 5 years. I had 3 types of loans described below:
- Private - $10K with an interest rate of 4.75%
- Government - $30K with a weighted average interest rate of 5.5%
- Home Equity Line (through parents) - $40K with an interest rate of 2.75%
- I knew I wanted to pay off my loans in 5 years (or 60 months) so I mapped out a payment schedule for each loan for each month. I calculated that without refinancing I would need to save about $1,450 each month to achieve my goal.
I next prepared a budget to see if I could afford a $1,450 payment each month. I basically got rid of any discretionary spending including entertainment, cable, gym membership, etc. and was close enough that I figured I could do it. I also knew my income would grow over the next 5 years and would give me some wiggle room to eventually have some discretionary money.
My next plan of action was to refinance the highest interest rate loans (2 government loans with an interest rate of 6.6%). I was able to refinance through an online only lender for 4.75%. This helped me as it lowered my total interest expense that I will have to pay, and more money in my pocket is always a good feeling.
Next, I mapped out my $1,450 monthly payment so I paid the highest interest rate loans (now 4.75%) first with paying the minimum amounts for the lowest interest rate loans. Once the highest interest rate loans are paid off I will re-allocate my $1,450 to the next highest interest rate loan.
I am about 6 months in and everything is going according to plan. It is not always easy, and I don't have much flexibility in my budget, but every month I feel better and better. Unexpected expenses may come up where I won't be able to pay the full $1,450, but if I can shoot for that goal each month, I would be able to pay it off in ~58 months, which would be 2 months ahead of schedule!
Each person's situation is unique and different than mine, but I put a lot of work into planning and mapping out my plan. It made me feel better. If you do the same, maybe you will feel better about your situation.