My son Matt just finished his master’s degree in education. Last week we got the diploma in the mail. Today we got the letter from student loans detailing his payback schedule – including interest accrued before the repayment date event starts!
According to an article about student loan debt from Forbes, student loan debt in 2019 is the highest ever. “There are 44 million borrowers who collectively owe 1.5 trillion in student loan debt.” It’s so rampant that student loans make up the second highest debt category – right behind mortgages!
Debt across the ages
The student loan epidemic isn’t only a problem for people just out of school. It wouldn’t surprise anyone to hear people in their thirties are still carrying student loan debt, but according to the above Forbes article, the largest increase in student loan debt comes from people in their sixties.
Depending on whether the student has a private loan or a federal one the interest rate will vary. My son has a federal loan so his interest rate is about 6%. His loan is for $7, 220. Luckily, it’s not huge. If he does nothing but follow the payment schedule provided by the loan office he will pay just over $80 a month for 114 months to pay it back. At that rate he will end up paying a total of $9,489 – an extra $2,269 in interest. Almost an extra third!
Obviously the higher the loan, the higher the accrued interest -but none of us is doomed to be a statistic.
Whether you have a student loan or some other outstanding debt, a painless way to make an extra payment a year is to pay your loan twice a month instead of once. We’re not saying to pay more (although yes, we do want you to pay more – but more on that later), what we are saying is to divide your payment in half and pay it every two weeks instead of once a month. As I said, Matt is supposed to pay $80 a month. If instead of doing that, he pays $40 every two weeks then over the course of a year he will have made 13 months of payments rather than 12!
Get high interest loans out of the way
If student loans are not your only debt, you need to prioritize yourself. Figure out which debt is costing you the most in interest every month. Make the minimum payments on everything then clear through the one that’s costing you the most first. Once you’re finished with that move on to the next one.
Review your budget
The payment amount set by the loan office for Matt is $80, but of course the more Matt pays the faster he dispatches the loan and the less interest he pays as he goes and overall. Matt’s first priority is to assess his budget. He needs to figure out much extra he can put towards that loan on a monthly basis and where that money will come from. That might mean taking his lunch to work more often or riding his bike instead of taking public transit. It might mean he decides to move back in with me for a while to put that rent money toward the loan.
Student loan repayment benefits
To help deal with the overwhelming problem of student debt, many companies offer student debt payment assistance as part of their benefits package. Some will simply put money toward your debt on a regular basis, others will match payments made by the employee. Here are a few examples. A little research will help you track down more!