Sharon
What is the best way to pay off your student debt?
I'm starting #college in the fall. I'm working on #scholarships but I know I'll still have some debt. #financial-aid #student-debt
4 answers
Abby Lupi
CareerVillage.org TeamAbby’s Answer, CareerVillage.org Team
Hi Sharon! I’m sorry no one’s answered your question yet. We're working hard to get it answered by Professionals with the best insights, but in the meantime I've included a link to a relevant Q&A here on CareerVillage.org that should be super helpful for you to read through.
Naomi asked: How many years will it take me to pay off my college debt?, and one of the Pros who answered it said:
This is an important question as it shows you're thinking to the future and how to alleviate some of the stress that comes after college. While I'm not aware of your situation (amount of debt, whether you've graduated or are soon entering college, etc.) but my answer will likely be the same. As mentioned by Simona, it's important to be aware of what types of debt you have and specifically the interest rate associated with each loan. Also, some colleges/loan programs enable the student to have a 6-month grace period after graduating from college which is a short period where loans do not accrue any interest. This allows for you to save and chip away at the debt prior to it growing, specifically targeting the higher interest loans as they should be prioritized in paying off. If savings is not enough to pay off loans prior to graduation, allocating a portion of your paycheck and budgeting your lifestyle around prioritizing the loan payoff should enable you to chip away at the debt. As an example, choosing less expensive housing and food options over time will yield more savings and the ability to pay more to reduce your debt quicker...
Click the question to read more of what this Pro and others had to say!
Good luck!
Abby
Community Management Intern at CareerVillage.org
Sherri Harmon
Sherri’s Answer
Hi Sharon, congratulations on starting college. You ask a great question, one that really has many correct answers. Depending on the type of loans you are borrowing, will determine your repayment plan. There are many different ways to repay your student debt. As someone had mentioned in a previous comment, start with the loans that have higher interest rates. If you can afford to make payments while in school to keep your interest costs down, I would encourage you to do so. You may also consider looking for a job that offers tuition reimbursement, many jobs will offer that while you are in school as well as when you graduate, depending on your field of study, some employers will assist with student loan debt. Below is the federal student loan link which is very useful and assists with budgeting. You must have a FSA ID (the same ID you utilized to complete your FAFSA.
https://studentloans.gov/myDirectLoan/repaymentEstimator.action
Sherri recommends the following next steps:
Alecia Woody
Alecia’s Answer
Also leverage smaller, cheaper community colleges for the first year or two for your core classes and then transfer to the school that you would like your "paper" from.
Look at college as a financial game to spend as little as possible - you will be very thankful when you get out.
Leverage part-time on campus jobs where you man desks (fitness center check in, dorm check in, library) - this way you can study AND get paid.
Robert Holeman
Robert’s Answer
Let's get some very important questions out of they way before diving into answering your question.
1. What makes you think you need to go to college?
2. What degree are you seeking?
3. Have you done any research into how much you are likely to make upon graduation?
4. Do you know how long it will take you to graduate?
5. Do you have a ballpark as to how much debt you will be graduating with?
To rack up all that debt and come out of college lacking either a degree or a job is devastating to your financial future. There are millions of millionaires that never graduated from college. Many of whom never even attempted college. Income is important but compounding is key.
-- We now return to our regularly scheduled programming. --
The basic accounting equation is Assets = Liabilities + Owners Equity. Flipping that around a bit you get Owner's Equity, aka net worth, equals Assets - Liabilties. Its what is left over after you've paid off all your debts. Often this is a negative number when folks are just entering the workforce. You need to get into positive territory as quickly as possible. Your question is a nod to that fact. Good.
When it comes to growing your net worth, the most important factors to consider are you debt level and income. You may not be able to control your income. You'll have debt and you'll need a job to pay off that debt. There isn't a lot of wiggle room there. So lets focus on aspects that are clearly within your control. That's your spending. You want to invest in assets that grow your net worth.
So what is an asset? A lot of folks get confused here. Neither cars nor (non-investment) houses are assets. Sure they land in the asset column of a balance sheet but in reality for an individual they function more like a liability. They are a resource, but there are other/cheaper options that can fill the same role. Remember to keep the resulting behavior in mind when choosing where to place your time/money.
I suggest you do the following: (finally right?)
- Invest in a good financial management software program (quicken, mint, etc) & learn how to use it properly.
- Reconcile your accounts once a week.
- Study which loans are costing you the most in interest payments. Which should get the additional principal, a $100 credit card at 20% interest or the $20,000 car loan at 5%?
- Categorize your transactions into a few areas.
-- Food, categorized into groceries, restaurants, fast food, booze/bars, coffee
-- Mandatory = Shelter, utilities, education, transportation, financial/loans, & taxes
-- Discretionary = everything else. This area will be the hardest to categorize. So take the time to develop a strategy & stick with it.
- Transfer all of your spending into an Excel file under those assigned categories.
This will help you determine where your money is going. You'll see the past months results right before you eyes. You'll have an opportunity to reflect and determine if your getting the quality of life appropriate for your spending levels. Maybe you didn't even feel the $200 drop in your restaurant spending. Use that to tweak your behaviors.
Money is a tool. Used properly it can provide life changing effects. But it takes time to master. You seem motivated. Keep asking questions. Take some financial management classes. Keep learning. Good luck.