Student Loan Payments- How to get started

Ugh…I hate student loans. I never realized how much college cost until I had to pay it off after I graduated. I saved $24,000 by being a mentor/RA in the dorms for three years since they provided free housing and a meal plan, but along with my diploma came $30,000 of student loans. Do you know what we could do with an extra $30,000 to use toward something other than debt repayment?? When Dave and I got married a couple weeks after I graduated, we both agreed that our first financial priority after getting jobs was to pay down that debt ASAP.

Why did we want to pay them off so fast?
My minimum student loan payments were each around $50 per month. That came out to $150 per month for the three loans I took out. We could have made the minimum payments forever and have the loans paid off by the time our kids went off to college, but when we found out how much interest we would be paying there was no way we wanted to stick with minimums.

How much interest would we pay?
With $30,000 at a 6.8% interest rate, the amount thrown away to interest added up exponentially with each decade.
10 years: $11,487 (payment of $345/month)
20 years: $24,960 (payment of $230/month)
30 years: $40,405 (payment of $200/month)

How much interest did we end up paying?
We paid off 100% of our $30,000 in 9 months. We put a total of $2,287 toward interest because one of my loans started accumulating interest when I took it out in 2007 and we didn’t start making payments until 2011.

Where do YOU start?
If you don’t want to get stuck making student loan payments forever, the following steps will give you a good place to start. It doesn’t take much effort but it does take a little creativity and discipline.

1. How much do you owe?
I didn’t really know what this number was until Dave and I had to make a sample budget for our pre-marital counseling. I knew I had 3 loans but I didn’t remember how much each of them were and how interest had affected them over the past 4 years. If you took out loans through FAFSA, you can go to StudentLoans.gov to find information. This was how I found the numbers for two of my loans and the third loans was from a bank.

2. What are the required minimum payments?
As I said before, my minimum payments were $50 per loan per month, totaling $150/month. Knowing these numbers will help determine how much extra you can throw toward them depending what your budget looks like.

3. Determine what your monthly budget looks like
Do you know the average amount you spend on groceries each month? How about entertainment or gas? If you aren’t sure, I highly recommend downloading the same Budgeting Spreadsheet Dave & I created in Excel and still use 3 years into our marriage. Don’t be intimidated by all the categories, I tried to include all possible categories that might be in a budget so you can narrow it down to the ones that apply to you. I suggest you enter in your numbers in the following order to help you determine how much you can put toward student loan payments:

Fixed Expenses
These categories are payments that stay the same and will occur every month- tithe, taxes, student loan minimum payments, retirement savings, mortgage payment, rent, insurance, phone, etc.

Variable Necessities
The amount for these categories will vary month to month but are necessary to have. Be honest with yourself and only enter REAL necessities- groceries, utilities, transportation expenses, etc.

Variable Desires
These are the last entries you’ll put in your budget for the simple reason that they are DESIRED but not NECESSARY. This includes entertainment, eating out, vacation savings, gifts, clothing, gym membership, hair cut, subscriptions, etc.

If you’re not sure how to figure out monthly costs for odd categories like clothes or make up, this example should help: I get a hair cut every 4ish months. That’s 3 hair cuts per year. If one hair cut costs $20 (I pay way less but I’ll aim high for this), then I’m spending $60 per year which comes out to $5 per month. I would enter “$5” into the hair cut category. You can take a rough average for other categories to get a basic idea of what your monthly budget breaks down to.

4. Determine where you can “trim the fat”
The first place I recommend starting is the variable desires. Depending how quickly you want to pay off debt, you can trim as much fat as you want/can from these categories. For Dave and me, we worked out at our apartment complex gym so we didn’t have to pay a membership fee to a commercial facility. Instead of having cable, we rented movies from the library and watched our favorite TV shows in Hulu the day after they aired. Eliminating a gym membership and cable alone gave us well over $100/month to put toward student loans. Since our goal wasn’t “debt payoff in X amount of years” but rather ASAP, we continued to search every nook and cranny of our budget for more fat to trim. We found ways to whittle down our “fixed” expenses by living in an apartment right next to Dave’s work so he could walk and we didn’t have expenses that come from having a second car.

You’ve got to start somewhere
Get as extreme or conservative as you need to according to the time frame you want to pay off your student loans or any other debt you may have. I can’t complain that I came out with $30,000 since I know many friends who finished school with much more. You may have all the motivation in the world to pay off debt but there are circumstances outside of our control that may prevent you from paying off $30,000 in 9 months like we did. You’ll have to determine a realistic goal that works for your situation. Whether you have $5,000 or $500,000 of student loans you can still save a lot of money in the long run by making even a few extra payments each year. It may seem overwhelming to think about at first but if you walk through the steps I provided you may find that you are able to trim the fat on your budget and attain financial freedom sooner than you thought.

If all hope seems lost, you may want to consider going back to school for a graduate degree. Though this might seem counter-intuitive to do so, as this will increase your total debt, a graduate degree will give you access for jobs with much higher pay. Pursuing a Master of Science in Health Care Administration online is an excellent option if you have a related Bachelor’s degree. This is just one of many options at your disposal, and online school is significantly less expensive than a conventional university. It only takes moments to look at more info and it just might be the first step to debt freedom!

If you had debt and paid it off, what methods did you use to do it?

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Author: budgetforhealth

Jessica is a Registered Dietitian and shares practical, useful tips on food, fitness and finance. Be sure to subscribe to her blog, Budget for Health!

11 thoughts on “Student Loan Payments- How to get started”

  1. I feel your pain. Isn’t it pure insanity how the interest can get you? Can you even imagine paying back a loan over the course of 25 years? I’ll be double my age by then. Forget that. I’m having mine consolidated because I’m tired of my current lenders trying to club me over the head with collection notices after 30 days. That’s not a good way to conduct business, promissory note or not.

    As a business, they should be a little smarter about their practices. They can either settle with me for the full amount over 20 years or I can let it go to collections, pay a third of the loan and be debt free. Some days it doesn’t sound so bad. Especially since they already tanked my credit after a loan I wasn’t properly notified about hit 60 day delinquency. Bankruptcy doesn’t sound so bad.

    1. Yikes. I’m definitely not savvy when it comes to those details but I were in a tough spot financially I would recommend getting financial counseling to figure out the wisest way to work though the problems.

    1. It is way scarier! I know there’s the benefit of a tax write off but I’m curious: at the end of the day, how does the total interest paid compare with the amount we receive in tax returns? I’d like to find out what what the ideal timing to pay off our loan would be. Not quite sure where to get started with figuring that out! Numbers hurt my brain.

  2. $30,000 in 9 months is such an amazing accomplishment! I am focused on paying my loans off one by one with the highest interest rate first. It is an amazing feeling to see them disappear and save the interest. I think it is important to see how much interest the loans accumulate. Many people just don’t want to look and avoid that specifics in general.
    Blair@LifeDollarsandSense recently posted..52 Week Challenge- Living with Less

    1. Thanks Blair! We did the same and knocked out the high interest loans first. If someone is dragging their feet on making extra payments then Dave Ramsey suggests paying off the smallest loan first to get a little victory that will give you momentum.

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