According to the Chronicle of Higher Education, nearly 60% of all college students take out student loans, which amounts to about 12 million Americans taking out these loans annually. About 37 million people are still paying off their student loans, according to the Federal Board of New York, with the majority being under 30. The total amount reaches between 902 billion to 1 trillion, with the average student owing almost $25,000.
Many of the young students with loans are finding it difficult in this economy to move beyond college and start families, buy cars, and buy houses. The fall in the economy have led to graduates making less money and having to find jobs that do not have as much promise. Additionally, the average student now has a credit score 15 points lower than before. This has led to the “boomerang” effect for many students, where they return to live with their parents while figuring out their finances and their future. However, there are a few simple tips on how to live with student loans.
If you have private student loans, you can look to loan consolidation. This can typically lower your monthly payment and interest rates, making it easier to pay off your loan. For loans through Sallie Mae and the Department of Education, you have many options for loan repayment. You can choose repayments based on your income, which will ease some of the burden momentarily. With more manageable payments, you can find a way to make your monthly finances stretch longer. However, you will end up paying your debt for more years and end up paying more due to interest. Once you have a strong handle on your loan repayments, then before you know it you may be able to afford to purchase a home, especially if you find lowmortgage interest rates.
In order to pay off your student loans quickly and efficiently, you can find ways to decrease your monthly expenses. Look into how you spend your money and where you can trim the fat. Don’t eat out as much, skip your daily coffee from your favorite café, hit the sales rack more often, and buy food in bulk. There are many ways to save money and stretch every dollar further. You can even look into taking the bus to save money on gas and car payments. Depending on your situation, you can look for ways to cut back on your rent or mortgage. Perhaps you do not need as large of an apartment or can live with roommates. There are easy ways to cut back on your current spending so that you can pay off your debt faster.
Find Supplement Work
Another way to speed up your loan repayment is through finding supplement work. This does not have to be typical jobs. You can consult, walk dogs, perform landscaping, freelance based on your skills, tutor, and many other jobs. Even selling old unwanted items through eBay can bring in additional income.
Photo by: Flickr
College loans are tough. While I don’t like debt, the fact is that a lot of people haven’t saved enough to be able to go to college using cash. College loans can help them get an education. However, people still need to go to schools that they can afford and major in subjects that pay. Going to a private school for philosophy may not be the best choice if you don’t have any savings.
Borrowing for an asset that will increase your earnings is a good thing. It is what you do with that degree that is important. There is no easy path for the liberal arts majors.
We significantly increased our extra income and overall income in order to pay ours off quickly.
Good for you! Normally, student loans are low interest loans and you should look look at opportunity costs. Would the excess cash better invested or paying down the loan?
If you keep living like a student for a few more years, your debt should disappear quickly. It isn’t fun to keep having ramen while you make real money but it will be fun to be debt free two years later.
I think it is always a question of priorities! If you think it is important to pay off your student loans quickly, you makes sacrifices.
Cat Alford (@BudgetBlonde) says
I use all my extra money from staff writing to knock out my student loan debt. Just made a bit 1,000 payment this month and it feels so good!
Great! Using extra income to pay down student loans is good way to reduce the balance.
I try to do as much as I can so I don’t get crippled by my student loans. I live frugally, but I also find ways to make extra money when I can. Once I get the loans paid off that will be a big increase in income every month. But until that happens, it’s a burden. So I want to get it done and over with.
Don’t forget to invest in a 401K too. Living with student loans means you still need to look toward the future.
Daisy @ Prairie Eco Thrifter says
I worked throughout my degree so I didn’t have to incur so much in student loans, but I do have some. Luckily my loan is a private loan from a family trust so the interest rate is less than 2%.
You are one of the fortunate few. Student loans because of size and interest rates become a real hardship on some.
Sallie T. Faulkner says
What’s the impact on credit files? None whatsoever. Your type of student loans are not included on your credit file. However when applying for a product you may be asked whether you have loans, plus the fact your take home pay is reduced may be taken into account (see the Credit Rating guide).
I agree studeent loans will reduce your ability to borrow for a mortgage.
Anton Ivanov says
I think living frugally, maximizing income (with primary and secondary employment) and focusing all of the spare cash flow on debt repayment is the way to go when dealing with student loans (or other forms of debt). It may take several years of dedication to become debt free, but it’s an essential step to reaching financial freedom.
I used debt (mortgages) to help me achie financial freedom. Some debt (mortgages) allow you to leverage your investment at a low interest.
Sandra Chase says
This page discusses debt settlement for defaulted federal student loans. The US Department of Education has very strong powers to compel payment of defaulted student loans, including garnishment of wages and Social Security benefits, income tax refund offset and blocking renewal of professional licenses. Federal student loans cannot generally be discharged in bankruptcy unless the borrower can demonstrate undue hardship in an adversary proceeding. The availability of income-based repayment, which reduces the loan payments to an affordable level, makes bankruptcy discharge of federal student loans very rare. But the US Department of Education does occasionally settle debt for less than what is owed.
I presume any settlement is rare! It may be one of the reasons the interest rates are so low. There very little rik.
I haven’t really been paying off my student loans with any urgency because they are at something like 2.5% interest. I’ve been focusing on other debts first. Once those are paid off though, student loans you are going down!
I agree, you should set priorities! Starting saving and investing early is really important. You certainly can earn more than 2.5% in the stock market.
Natasha G. Roth says
That trajectory can be attributed to the fact that each year more than $100 billion in federal student loans are originated, while another $10 billion is originated in private student loans.
Very true! Since college has become more and more expensive, more students are needing more financial aid to attend.
Shelton W. Maldonado says
This is the second chance you’ve been waiting for — a lower payment and a more forgiving timeline. Take advantage of this opportunity and make your payments on time. Feel good knowing you solved your debt issues by being proactive. You’ll start making your one new payment immediately on your consolidated student loans.
There is a saying, make lemonade out of lemons. If you are proactive , you can change a bad situation into a better one.