3 ways to avoid the student loan black hole...and 4 ways to escape it

 Photo Credit: Josh Felise via Unsplash

Photo Credit: Josh Felise via Unsplash

College football is underway, and you know what that means? Yep, hours spent tailgating at your alma mater, mini-reunions with your old beer pong partner, and so many Saturdays spent eating chili and drinking beer that you need an entire 9 months to recover from it. And luckily for IU fans this year, a lack of utter embarrassment (Woohoo!  Good for you! Although really, you know you’re surprised as everyone else about it.).  Know what else college football reminds me of?  College itself.  And the student loans that are an integral (though super crappy) part of it. 

I know, I know…student loans are the worst.  THE WORST.  It’s basically a fact of life, and one we all wish could just be swept under that chevron rug we just purchased at Target to never think about again.  Unfortunately, life doesn’t work like that.  And those student loans that gave us all that money way back when now have to be repaid.  Oh, the insanity.

Now, let me start off with this:  I was very fortunate to never have to take out a student loan.  I’ll get more into that in a future post, but for now, don’t hate me too much – it took a lot of hard work on many people’s parts to do so.  I am, however, well aware how much they cut into your paycheck and how awful it is to see hundreds of dollars each month go towards a degree that potentially has nothing to do with your current career.  Especially when that money could be going towards a house down payment, retirement fund, or that much needed winter weekend getaway with your girls to Cabo. Mojitos, anyone?

So I’m here to help you avoid that entire mess.  Or for those of you already knee deep in the muck, how to get out of it quicker.  These are the things that should be taught in high school but are thrown to the wayside so that you can learn Byron’s poetry and how to calculate the tangent of a circle.  You know, real world stuff.  So here goes, folks – my game plans for those of you not yet in the game and for those that are already 10 points behind and need to put on your rally caps.

How to Avoid the Black Hole (Pre-Graduates)

I’m looking at you, high-schoolers and college kids (or those of you responsible for one of them).  Here’s how you come out a step ahead of all your classmates when you say sayonara to late night study sessions and hello to 6am alarms.

1) Assess the Situation

Here’s some news:  student loans are no joke.  In fact, the average student loan debt for a newly-minted graduate in 2015 was $33,000.  Know what that means?  You’ll pay $160 per month and over $25,000 in interest (assuming a 30 year loan period) just to get rid of that debt.  Accelerate that to a 15 year loan period and your total interest decreases to a little less than $12,000 but your monthly payment shoots up to almost $250.  And I don’t know about you, but I’d rather have my money going somewhere way cooler. Like on a pizza sleeping bag.  Yes, it does exist and don’t act like you don’t want it (I mean, come on, it has veggie throw pillows.  No one can pass that up).

 Go ahead.  Add it to your Christmas list.

Go ahead.  Add it to your Christmas list.

That’s why you need to get educated.  Learn what types of loans are out there for you and where you can get the best rate.  Borrow the minimum you can absolutely manage to live on. Apply for EVERY SCHOLARSHIP YOU QUALIFY FOR.  Most importantly, look at schools not only for their Greek life and tailgating opportunities but their tuition rates as well.  Why go out of state and pay $15,000 more when you can get the same education in-state for cheaper? And heck, if you don’t know what you want to go to college for, don’t waste your 1st two years at a school that costs $30,000 just to get Gen Ed credits.  Community colleges can cover that at a much cheaper rate and you can still party with your friends that go to those more expensive schools on the weekend.  Comprende?  Just do your homework on this stuff – that way, you can spend that extra $25,000 on a car or a boat or a kitchen remodel (or LOTS of pizza sleeping bags) instead of on interest to Sallie Mae.  Much more fun.

2) Make Sure that B*!@$ is worth it

Listen, you have to look at what you’ll be getting in the end of all this.  After all the studying, research papers, and money, what exactly are you left with?  Because I’m going to tell you something:  not all degrees are created equal.  I hear someone mention a philosophy or English degree, and I cringe.  Why?  Because they are notorious for leading their graduates nowhere. 

Now, I’m not saying don’t pursue those degrees.  If you are passionate about something, you need to follow that passion.  What I’m saying is, give yourself a reality check in what you can actually do with the degree you’ll be earning.  And then base your college choice on that.  You don’t want to go to a school that’s going to cost you $120,000 to end up with a degree that maybe will pay you $30,000/year.  You’ll be 22 and treading water just to stay afloat, which isn’t exactly how you want to start your professional career and adult life (trust me, you’ll still want to have fun money for the happy hour margaritas…and  outdoor concerts….and random trips to Miami).

So if you truly want to be a teacher, be a teacher.  But find a college that isn’t going to bankrupt you at the end of the day.  A $40,000/year school, for the most part, is going to give you the same degree as a $15,000 one, so why waste the extra money?

3) Don’t Waste Your Resources

This drives me crazy.  Student loans are meant to provide the bare minimum: enough for your school tuition, room & board, and food.  You know, the basics. Do not spend the money you have loaned and have to pay back WITH INTEREST on a $200 Xbox to give to your college boyfriend as a Christmas gift.  Or on a 10 bottles of vodka for your sorority party.  Or on a killer Halloween costume you’ll wear for one night to your crush’s frat party where he’ll end up hooking up with another girl.  Not. Worth. It.  It’s borrowed money, and borrowed money is only used for the important stuff.  Want all that other crap?  Get a job. Or go without.  The best thing about college is that everyone is just as broke as you, so when you say, “Hey, can we just split a bottle of Kamchatka?  Smirnoff is too high end right now,” they’ll totally get it and won’t completely disown you.  It’s part of the college experience – enjoy it. (Except the Kamchatka.  You won’t enjoy it, and it’s best to just go without in that situation.)

How to Pull Yourself Out of the Black Hole (Post-Graduates)

Unfortunately, not everyone can win a full-ride football scholarship to Alabama or become a Rhodes Scholar, and for those not in those buckets, student loans are a necessary evil.  Hopefully you borrowed the least amount necessary, but even if you went a little loan crazy, you have the opportunity to kick these to the curb…and potentially do it quickly.  Here’s how:

1) Even a Little Help is Good Help

Did you know that if you elect to have your federal student loan payments automatically taken out of your bank account each month, you can save 0.25% on your interest rate? Now, it might not seem like a lot (just a few dollars off your payment each month), but you could end up saving a couple thousand in interest by the time your loan is all paid off.  And hey, for something that easy, it’s worth it.

Learn more or sign up here >>>  My Fed Loan:  Direct Debit

2) Find the Best Deal

If you carry a few loans with high interest rates, it may be a good idea to consolidate these if you can find a lender that will offer a lower rate.  The difference between a 5% rate and a 7% rate on $50,000 in student loans (and a 30-year repayment period) is over $23,000 in interest and $65/month. And that’s a nice chunk of change.

There is a federal Direct Loan Consolidation program, but if you also have private loans you’d like to roll in with those federal loans you carry, you may have to go to a private lender to consolidate.  Remember when you’re doing this, though, that if you have special provisions attached to your current loan, they will not transfer when you consolidate.  Also, you may be able to lower your payments by extending the length of your loan, but you’ll end up paying more interest on them in the long run.  If you’re in dire straits, extending it may be necessary, but if haven’t sunk to the “Ramen noodle diet” level quite yet, I would keep your repayment period as short as possible.


And I know this probably doesn’t need to be said, but in the spirit of full disclosure, don’t consolidate a loan that carries a lower interest rate than the one you will be switching to just so you can have them all under one loan.  It would be like being able to get a new pair of boots for $50 but paying $75 instead – just doesn’t make sense.  Keep any loan with a lower rate separate – you want to keep the amount of interest you’re paying to a bare minimum.

3) Roll Up Your Sleeves

Taking that first step into the real world is like a slap in the face.  All of a sudden, you are hit with insurance premiums, loan payments, and a cable package that doesn’t look as appealing after you’re only left with $30 to spare for “fun” money.  Unfortunately, sometimes your expenses eat up so much of your paycheck that all you can do is tread water to try to stay afloat.

Solution? Make more money.  I know, easier said than done in today’s job market, but I’m not saying that you need to be asking for a raise every month.  On the contrary, you need to be doing something outside the 40-50 hours you put in a week at your real job to tackle that debt.  You think Beyonce or Hillary Clinton got where they are by only working 40 hours a week?  I think not.  So maybe it’s babysitting or being an Uber driver or bartending on Saturday nights – whatever it is, that side hustle game can drastically cut away your student loan balance, and leave your future self with more money in your pocket.  You more than likely have the time to spare now, so why not hightail it on the path to being debt free?  It’s such a great place to be ;)

4) Shed the Crap

Here it is, folks:  the thing we should all be doing but don’t want to. Cutting your expenses down to the bare bones is not fun or exciting or the dream life we all thought we would be living in our 20s.  But you know what?  The sacrifice is kind of worth it.  I’ve been living WAY below my means ever since I graduated, and it’s helped me buy my own home (with a 20% down payment), create a hell of a savings account, and pad a nice retirement fund in the process.  Not glamorous accomplishments but major ones that everyone should be shooting for when they’re still young.  I mean, my retirement is going to be legit, guys.  LEGIT.  And don’t you want that for yourself?

Again, I never expect anyone to completely cut out all the fun in your life – I still wanted to travel and buy nice shoes and treat my parents to a nice dinner every once in awhile, too.  The thing is, you may have to cut back on other areas of your life (i.e. cable and happy hours with my friends a few times a week for me) to do so.  It’s all a matter of balance, and once you find it, achieving your financial goals isn’t so hard.

All of the steps above will help you get cut away at the balance (or avoid it altogether), but the biggest factor in tackling your student loan debt is how badly you want it gone.  If you’re fine sending $200 into the bank every month so that you don’t have to go without cable or can go to college on the coast, it’s no skin off my back.  You do you.  But if you want to be released from clutches of Sallie Mae and save a lot of interest and stress in the process, I suggest you put on your big girl (or boy) pants and get down to business.  There’s no reason you have to be saddled with weight of all that student debt – it’s just up to you how much you’re willing to sacrifice now to reap the benefits later.

 Photo Credit: Diego Hernandez

Photo Credit: Diego Hernandez