The average recent college graduate has $30,000 in student loan debt. The average medical school graduate has student loan debt the size of the average mortgage balance in California. 70% of U.S. college graduates have student loans totaling over $1 trillion. These are staggering numbers.
Those with student loans have no doubt had some sleepless nights. At least when a borrower has auto or real estate debt, they can see their tangible asset. With a student loan, the borrower sees nothing but a large liability they have to pay off. I had $7,500 in student loans after graduate school and thought it would never be paid off. With my starting annual salary at a CPA firm (in 1981) at $15,000, it took an inexpensive car, a roommate, lots of Top Ramen, and most importantly, a long-term financial and career plan to pay off the loan.
Many of our members at all age ranges we meet at financial counseling sessions are buried in student loan debt. What we have found is that these members are taking college classes without a long-term career plan and seem to be funding their living expenses with student loans. For many of these members, their “plan” is to keep taking classes to keep deferring repayment.
Here’s another sobering thought: 80% of all student loans are guaranteed by the federal government which are not dischargeable in bankruptcy. Defaulting on these loans means lower credit ratings and less of an opportunity to finance a car or home at reasonable loan terms.
Here are some suggestions to reduce student loan debt:
- Establish a budget. List every expenditure, including the ones in cash. Do without the daily lattes, and focus on the debt. Establish a savings account for your loan payment, and don’t withdraw it for any other reason. Successful people sacrifice instant gratification to focus on their craft.
- Make biweekly payments. An extra payment per month will save thousands of dollars in interest.
- Work part-time during college. If you’re taking classes part-time, work part-time in the field you’re interested in pursuing which will provide real-world experience translating into a better paying position after graduation.
- Share your salary increases with your loan. When you earn a salary increase, take 50% of it to pay down the loan. You’re not sacrificing what you already have while keeping your eye on the financial ball.
Paying off student loan balances is not a sprint, but a marathon. Thinking in terms of paying off an achievable percentage per year makes the debt easier to digest and less overwhelming. I would be interested to hear your student loan payoff success stories. Of course, your Credit Union is always here to help.