Dealing with any student debt is challenging, but what about when the amount is simply overwhelming?
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About one in five borrowers owes more than $50,000 in student loans, and 5.6% owe more than $100,000. It’s no wonder studies are showing that this generation of debtors is putting off marriage and having children, forgoing homeownership, and unfortunately defaulting on their loans.
To some, the idea of a six-figure student loan debt sounds crazy. But it’s more common than you think, for a number of reasons. Switching majors, transferring to a college that won’t accept some of your credits, or stopping and restarting school can all lead to higher tuition bills. Plus, many students don’t appreciate the severity of their loans at the time. They describe feeling as though it was “free money,” and foolishly use student loans to live way beyond their means. And if those loans are in deferment and still racking up interest, even small loans can quickly turn to big ones.
But the most common reason for six-figure student loan debt is pursuing graduate, doctoral, or other professional degrees. The average student graduating from dental school has $241,097 in debt, according to the American Student Dental Association. The average debt for a law school grad is $125,000, according to the American Bar Association.
Need some help paying down that mountain of debt? Here’s where to begin:
Phase 1: Starting Your Repayment Journey
Truth be told, any student loan debt can seem massive and overwhelming. But when you’re dealing with a six-figure amount, it can feel paralyzing. As you’ve heard before, every journey starts with one step. Here are the first steps you can take:
Understand your loans.
Regardless of the size of your debt, you need to understand it. That includes knowing exactly who and what you owe, which could be surprisingly difficult when you have a huge debt.
Second, know the terms and details of your loans. You need to know which loans are eligible for an income-based repayment plan, or if you are unable to make payments, which loans are eligible for an economic hardship deferment or an unemployment deferment.
Equally important, you’ll want to know the interest rate for each loan. This is going to help you determine if you should consider consolidation to try to get a lower interest rate, which loan you should pay extra on if that’s an option, or whether you should invest or save before paying extra toward a loan.
Don’t blow off your grace period.
If you just graduated, you’ll probably have a certain amount of time before you start paying loans. Take this time to research your loans and all your options.
Take whatever you’ll be paying on your loans (if possible) and instead put it in a savings account to kick-start your emergency fund. Not only will you have that money to fall back on in case you lose your job or run into unexpected expenses, but you’re now used to living on a budget that includes these loan payments.
Pick a payment plan.
For federal loans, consider going on an income-based repayment plan to reduce your monthly payment to make it more manageable if your debt is massive. According to the Department of Education, if your total debt is greater than your yearly salary, you’ll most likely qualify for an income-based plan.
Under these plans, if you make your monthly payments under your lenders’ terms, you may be able to have your loans forgiven after a specific amount of time (usually 20 or 25 years, depending on your specific loans and your lender). Use the FinAid.org loan calculator, which estimates your monthly loan payments, if you need help figuring out your plans.
Consider whether consolidation is right for you.
One way to make this debt more manageable is by lowering your interest rate. Consider consolidating your loan if you’re able to get a lower interest rate. Consolidation could also help by making it easier to keep track of things, since multiple loans get combined into one payment, making it less likely that you’ll miss a payment and incur late fees and credit issues.
However, experts advise never to consolidate your federal loans with your private loans. Instead, consolidate separately to a federally consolidated loan and a private consolidated loan. But keep in mind that this interest rate might not be lower — it depends on your current credit score and current rates offered.
Plus, you might be losing certain borrower benefits with consolidation, depending on what you go with. You could lose the opportunity to take advantage of loan forgiveness, deferments, or an income-based repayment plan.
The moral of the story? Consolidation is something to consider, but be sure to understand all of the terms thoroughly before making a decision.
Sign up for auto-debit to reduce your interest rate.
An easy step in the right direction is signing up for auto-debit. Once you determine whether or not you’re going to consolidate and you choose your payment plan, sign up for this program if your lender offers it.
Many lenders offer a small reduction in your interest rate if you sign up for auto-payment; it might not seem like much, but every little bit helps. Plus, you’ll be less likely to incur costly late fees or miss a payment — which can also drive up your interest rate and negatively affect your credit report. However, you must always be sure you have ample money in your checking account so you’re not dealing with overdraft fees.
Sign up for Upromise.
If you have loans serviced by Sallie Mae, you can create a free account with that links directly to your loans to help pay down existing debt. Any time you’re shopping online, simply click through their links and get a percentage of cash back applied directly toward your loans. It also applies to dining, travel, and in-store shopping.
You can even ask friends or family to register their cards as well to increase the money applied toward your debt. It’s probably not going to make a huge dent, especially since you won’t be doing too much shopping with your huge debt burden. But it can add up over time.
Explore loan forgiveness.
Hey, you’ve got this giant monkey on your back. You might as well see if some of it can go bye-bye.
If you’re having trouble finding a job and have time to volunteer, there are opportunities that allow you volunteer in exchange for having some of your loans forgiven. Able to relocate? Choose a place, like Detroit or Kansas, that offers an added incentive of loan forgiveness if you move there under certain terms, like living in a particular area for a specific amount of time. If you were already considering a career in the military, the fact that many opportunities come with student loan forgiveness might be an added incentive.
Find a job that pays your loans.
You can also look for a job that offers student loan forgiveness. Many of the careers that come with the heftiest of student loan debt, such as medical professions, lawyers, and veterinarians, also come with an opportunity to get loans canceled by working certain jobs. But there are also opportunities in law enforcement, education, speech pathology, social work, and therapy, and for anyone working in a qualified nonprofit.
Even if it’s not technically a loan forgiveness plan, some employers might offer student debt repayment as part of an incentive package for employment.
Phase 2: Making a Game Plan and Putting It Into Action
Make a budget.
Now that you know what your minimum monthly student loan payment is, it’s time to make your budget. That minimum monthly payment should be treated like all of your other monthly bills, such as rent, utilities, and insurance. You always need to pay that minimum balance to avoid late fees, delinquency, and default.
Make your budget work.
If you’re finding it hard to make ends meet, or you don’t have anything left over for savings or extra loan repayment, see what you can do to free up extra money. Increase your income by working a part-time job, taking on overtime hours, freelancing or finding side gigs, selling items you don’t need, or if possible, searching for a higher-paying job.
Decrease your spending by cutting costs wherever possible. Move to a cheaper apartment or take on roommates, carpool to work, walk or bike whenever possible, downgrade your cable (or eliminate it altogether) and cellphone bills, and find cheaper or free fun things to do. One method some recommend is to continue living like a broke college student even after you land your first real job to help your financial situation.
Don’t wait if you’re struggling.
If you’re having a hard time meeting your minimum payments, do something immediately. Ignoring student loans can lead to wrecked credit, garnished wages and federal tax returns, and dealing with collection agencies and possibly lawsuits. And once a loan goes into default, you can lose many borrower benefits for good. Federal loans may qualify for an income-based repayment plan or a deferment, if necessary. But even if it’s a private loan, call your lender to see if you can work out a payment plan or somehow lower your payments.
Phase 3: Paying Extra on Student Loans
So you’re at a point where you have extra money in your budget once all of your bills are paid and you allotted money for food and other costs. Congratulations!
What to do with that extra money?
Before you start putting it all toward your student loans, consider tackling any other high-interest debt you have, such as credit cards or a car loan. Most financial experts will tell you not to forgo building a sturdy emergency fund and saving for retirement to pay those loans instead. This is especially true if you can put that money into an investment account that is going to give you a higher return than the interest you’re paying toward your loans.
Whether or not it’s the best financial decision to pay extra on loans is debatable, but one thing is certain: Paying extra will bring down that debt faster.
If you’re going to pay extra on your loans, pay on the loan with the highest interest rate first. It’s also a good idea to consider attacking your private loans before federal loans, which might be forgiven down the road. If you lose your job, many times with a federal loan you can apply for an unemployment deferment, something you might not be able to do with a private loan.
Even paying an extra $50 per month may reduce the time you’re paying off loans by months, or even years, writes Katie Brewer, CFP of Your Richest Life. Use CNN’s student loan calculator to figure out how much earlier you’ll pay off your debt if you add a small extra payment each month.
But before you start making additional payments, call your loan provider to see what they’re going to do with that extra money. Some companies will simply put that money toward future payments instead of toward your principal balance. You might need to put in a formal request that extra payments go toward your balance, which will lessen the interest you pay over the life of the loan.
How to Stick With It
When you have huge student loan debt, it’s probably not going anywhere anytime soon. A payment can feel like a drop in an ocean. Here are some tips for keeping motivated when dealing with student loan debt:
Keep track of your progress. If you’re making progress on your loans, keep track of it. Every month after you make a payment, write your new total. Whether it’s a document on your computer or a post-it on your mirror, this can show that your efforts are making a difference.
Know your goals. Paying down your debts and saving for your future can feel like a balancing act. Make a list of your financial goals – including how you’re dealing with debt and your saving goals. Include both short-term and long-term items to keep you motivated.
Celebrate your victories. Create milestones when you’re dealing with massive student loan debt. Whether it’s eliminating a specific loan or simply getting it down to a certain amount, celebrate your accomplishment and feel proud of your hard work.
Put that degree to work. Millennials with a college degree, ages 25 to 32, earn an average of $17,500 more than those with high school diplomas only. Don’t get discouraged if you haven’t broken into your field yet, and don’t settle for being underemployed. Keep going for your intended career.
And better yet, use that very college you paid all that money to help. Contact your alumni department to see what resources they offer graduates, even if you graduated 10 years ago. Many times you’ll find networking events for alumni, career fairs you can attend, job boards, or a database where you can upload your resume or search for jobs. Still can’t land a full-time job with your degree? Leverage your degree to do freelance work, side gigs, and consulting jobs until you can.
Feel good about your degree. Once they see their enormous debt, many students regret going to college. Even if you’re not utilizing your degree at the moment, try to appreciate the education and experiences you gained from that degree. While it may be difficult if you’re regretful, it could help ease that resentment and make accepting and paying down that debt a little easier to deal with.