The Burden of Student Loans

I’m not going to lie to you: Getting rid of student loan debt is hard. The average student graduates with about $20,000 in student loan debt, but lots of my friends have more than $100,000 in loans to pay off. Unfortunately, it’s not like you can just wave a magic wand and make it disappear. In fact, even if you declare bankruptcy, you’ll still have to pay your student loans. However, even if you have huge student debt, I want you to pay attention to how much money you’re putting toward the monthly payments. Because the loan amounts are so large, even an extra $100/month can save you years of payments.

Let’s look at an example. “Monica,” a friend of mine who graduated from nursing school, has $40,000 in student loan debt. At 6%, if she pays off the loan over ten years, her monthly payment will be about $444/month, meaning she’ll pay $13,289.84 in interest. But if she pays just $100 more/month, she’ll have to pay only $9,986.55 in interest—and she’ll pay off her loan in 7.5 years.

Most of us accept our student debt as is. We get a bill each month, we pay it, and we shrug, frustrated about the burden of our loans but not really sure if we can do anything. Guess what: You can change your student loan payments.

First, to inspire you to take action on paying off your student debt, play with the financial calculators at http://www.dinkytown.net. You’ll be able to see how paying different amounts changes the total amount you’ll owe.

Second, we’re going to work on coming up with a plan to pay off ALL your debt. Not only is it a psychological victory to know that you’re consciously working to pay off your debt, but you’ll also be able to focus on investing sooner. Make sure this is automatic, drawing right out of your checking account, so you don’t even see the money.

Finally, if you find that, no matter how you run the numbers, you’re not going to be able to pay your loan off in any reasonable amount of time, it’s time to call your lender. Look at the phone number on that monthly bill you keep ignoring. Call them up and ask them for their advice. I can’t emphasize this enough: Call them. Your lenders have heard it all, from “I can’t pay this month” to “I have five different loans and want to consolidate them.” You’ll want to ask them the following:

What would happen if I paid $100 more per month? (Substitute in the right amount for you.)

If you’re looking for a job, you might ask, What if I’m looking for a job and can’t afford to pay for the next three months?

Your lender has answers to all these questions—and chances are they can help you find a better way to structure your payment. Typically, they’ll help you by changing the monthly payment or the timeline. Just think: With that one call, you could save thousands of dollars.