I didn’t come from a rich family. I didn’t have a college fund waiting for me when I turned 18. Never for one second did that slow me down on my quest to pick the perfect school. The issue of how I was going to afford my dream school, a private school, preferably east coast, brick and ivy, in a city, was a non-issue. I took out loans. And it was easy. I applied, had my parents co-sign, and honestly didn’t think much about it again until 6 months after I graduated. I was making a living bartending by night and spent my days playing volleyball on the beaches of Southern California when Sallie Mae came knocking. Six years later and nowhere near debt-free, I’ve realize just how uninformed I was. Since then I’ve had my share of ups and downs with student debt repayment plans. I’ve paid over $600 a month when I wasn’t even working full-time. I’ve made interest-only payments without realizing it. So many times I’ve paid amounts that after covering the interest barely scratch the surface of the principle. I’ve thrown a large lump sum at the principle when I had the extra funds to do so. The fact is, there is pretty much no way to completely shake loan repayments. It will be with me for the next 15-20 years and if I could do it again, I’d like to think I would have done some things differently.
1. Choose the Right Kind of Loans For YOU!
Ninety-three Percent of loans taken out today are federal loans. Federal loans have fixed interest rates, can be consolidated, forgive a portion of your loans if you work in public service through the obama student loan forgiveness program, better known as public service loan forgiveness and allow borrowers to tie their repayment plan to their income, using the IBR. TheIncome Based Repayment plans were designed to determine how much a borrower can afford to pay each month based on their salary, with a cap set at 15 percent. After 25 years of repayment, any money still owed is forgiven.
IBR is the most widely available repayment plan for federal student loans and an estimated 1.6 million student loan borrowers are eligible for the IBR. Currently, enrollment in IBR programs makes up 10.5 of borrowers in repayment and the number is continuing to grow. From last year alone, enrollment in IBR had increased by 6 percent but with that, the number of people taking out student loans to pay for their education is doubling every year, meaning we need to get in front of this now.
Twenty percent of borrowers repaying their college debt are defaulting on their loans because they simply cannot afford to make the payments and are completely unaware that they may have options. Borrowers who are aware of the programs are often overwhelmed and confused by the different options available, which plan is most advantageous, the terms they carry and all of the paperwork that is required to continuously keep them enrolled in the program.
2. Know what you owe
Like most college loan borrowers, I didn’t put all of the available funds directly into school and books. Some went to the feasts at the corner pizza place. Some went to the nights out at the local bars. Quite a bit went to the all the Sox games I saw at Fenway. Of the four loans I have left to pay off, three of them have higher balances than the amount I originally borrowed. A concept I’m sure I didn’t spend much time worrying about at 18 but am all too familiar with now is how much of an enemy interest can be.
A typical borrower will pay $279,002 in interest on debt repayments in their lifetime. A lot of people, including myself, were completely unaware that many loans accumulate interest while you are still in school and are added to the original balance of the loan. This creates a snowball effect as your principle increases and you end up with more debt then you initially expected. I never paid attention to the difference between the loans I had, whether private or federal or what the interest rates were on each loan.
As it turns out, private loans are extremely difficult to negotiate in terms of repayment timelines and interest rates. As it also happens, private lenders will let you borrow basically as much as you need and with so many students borrowing such large amounts of money for higher education, it can start to feel like you’re playing with monopoly money. Looking back, I could have borrowed less. I should have created a budget before deciding how much I would need. I should have made interest payments while in school. I should have applied for every grant and scholarship available. I like to think that by researching these things before loaning, I would have chose differently.
3. Make a Financial Plan NOW
While I wasn’t worried about how much my degree was costing me at the time, I wasn’t completely blind to the price tag on my education. I always thought I’d have no problem paying off my loans after I graduated and was handed my dream job. But let’s stop for for a second and be real. That doesn’t usually happen right away, especially as many of us millennials graduated during a recession with skyrocketing unemployment rates.
For the ones that did get a job right out of school, it most likely was not the $60,000 job we imagined being handed to us but instead an entry level position paying closer to $30,000. If there is one thing I wish I could tell my 18-22 year old self, it would be to begin thinking about your future now. Set financial goals for yourself. What will you owe after you graduate?
At what age do you realistically see yourself debt-free? At what age do you want to retire? I know these are big questions, some of which I’m still asking myself now, but if you start actively thinking about these things, educating yourself about your loans and making a plan for your future, you will be more likely to meet your goals and create a life you want for yourself.
I know college is expensive. And I know there are some obvious choices I could have made to ease the financial burden thrust upon me after graduation . I could have gone to a community college for the first 2 years and then transfer to a 4 year college from there. I could have lived at home to save money. I didn’t have to go to a private school. But I’m not going to tell you to give up on your dream. I had the exact college experience I had always wanted and I wouldn’t trade that for the world. But I would have spent more time and energy focusing on setting my future self up for financial success. This is an ongoing battle for over 40 million americans, including our chief in command Barack Obama, who has been quoted saying that he didn’t make his last loan repayment until he became the President of the United States. The lesson here is simple.We are all in this together. Do your homework first so you can be sure to make the most informed and educated decisions before borrowing. It can make all the difference.
We are always interested in hearing other ideas and opinions! What did you think?