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Americans owe 1.64 TRILLION dollars in student loan debt, spread over about 45 million borrowers. Student loan debt has become commonplace, but it can be financially crippling.
How should you approach your student loan debt?
Everyone's situation is different and there isn't a one-size-fits-all solution, but there are a few important things to consider when creating your plan.
1. KNOW YOUR BALANCE AND INTEREST RATE
- If you haven't checked lately, log in to your loan servicer and make sure you are up to date on your latest balance and interest rates. There is a BIG difference between a 2% interest rate and a 9% interest rate on a private student loan.
2. CONSIDER CONSOLIDATION OR REFINANCING
- Consolidation just averages your prior interest rates into one payment, while refinancing is a new loan with a possibly lower interest rate. Refinancing will remove the possibility of public student loan forgiveness, as an FYI. I personally didn't refinance because I planned to pay mine off with MEGA speed, so the cost of the refinance didn't justify itself in time and saved interest. I do know several people who have used Sofi and been pleased.
3. DECIDE IF PUBLIC STUDENT LOAN FORGIVENESS IS RIGHT FOR YOU
- This has a variety of requirements, namely 120 qualified payments while working full time as a government or non-profit employee. This sounds great, but proceed with caution. As of Feb 2020, >140,000 applications had been received and only 4,238 have been approved. If this is a part of your plan, you need documentation of each and every qualified payment. You may also consider increasing your investing dramatically so that you have a chunk of change set aside in case your loans ultimately aren't forgiven in the end. Remember, this program can end any time with changes in the political climate.
4. PLAN TO PAY EXTRA
- If you want to be mortified, calculate the total amount (with interest) you will pay over the life of your loan using an online calculator on the standard repayment plan. Any amount you can pay extra helps exponentially. Make sure you're on a written budget, and temporarily increase your income if possible. There are a million ways to make extra money. Get a part time job, start a side business, use cash back programs while shopping, drive for Uber, etc.
Even though your student loans may seem overwhelming, it is possible to get rid of them! I paid off $161,000 in student loans in 16 months. I held four jobs (one full time, three part time). I worked 80+ hours a week and kept all non-essential spending to a minimum. I organized my loans by highest interest rate (which for me were all my private loans). I made minimum payments on all of them, and then made massive extra payments to the highest interest rate loan until it was paid off. I continued that process until they were all paid off.
Let me tell you, it was well worth it. If I can do it, you can too!
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