8 years ago I wrapped up grad school with a whopping $150,000 I owed to Navient. I wasn’t alone either. While the average US student leaves school owing $30,000, I know plenty of people who have over $100k in student loans, just like me.
I’ve done my research and feel confident in my student debt repayment strategy, but I continue to feel strongly that the system we have in place for paying for higher education is criminal.
Student debt feels suffocating. Most of us are young and don’t really understand money. I remember going through school thinking “I’ll pretty much be rich, I mean I could even make as much as $30,000 per year!” I’ve come a long way since I accumulated my debt and have learned a few things about managing it in the years since.
Know Your Student Loan Repayment Options to Choose the Right Plan
There’s no one size fits all approach to managing over $100k in student loans. Factors such as your income, comfort with debt, career and current interest rate should all factor into your decision making. That being said there are a few constants to consider.
How quickly should you pay your debt?
You can choose to take a lower interest rate and pay off your loans faster with a higher monthly payment. I originally found this option incredibly appealing. I wanted to shed the yoke of my debt quickly. However, once I started learning more about investing I realized that it was a great way to lose out on money.
Currently I pay a 4% interest rate, but my annualized rate of return on my invested savings is 14.95%. It’s not necessarily reasonable to expect that high of a return in the long run (everyone’s a genius in a bull market) but 7% is what a financial advisor told me to assume in my planning.
With those numbers in mind it makes more sense to me to pay less against my debt and save more – put my money to work for longer term greater returns. One day my returns might even be enough to cover my monthly debt payments.
Federal or Private Consolidation
I held out for a long time before I went with a private consolidation. If you have fully subsidized loans right now is a great time to still have federal debt. The current administration is finally starting to address some of the criminality behind the student debt system. There are forgiveness programs going into place that could save you years of repayment.
If you’re considering a federal consolidation program or just thinking about whether to stay or go with your federal loans, my advice is to use the 7% benchmark. Don’t pay more for your money than you can earn with it.
If you’re like me and you didn’t know what you were doing when you took out your loans and have insane rates (I had over 9% interest on some of my loans) then going private could be a great option. Right now I’m using Earnest. I love the flexibility I had in choosing a repayment time frame down to the month. I chose 13 years and 9 months which was the shortest I could go to get down to a 4% interest rate.
How to Make Private Consolidation Work for You
Refinance! ALOT. It doesn’t cost anything to do so and I haven’t seen any major hits to my credit rating. Wait until you have your credit score in a good place, over 750 should do the trick (more on this topic to come) and then find the lowest monthly payment you can. If 750 is out of the question for your credit score, SoFi might be a great option. They take a variety of factors into account when assessing credit, not just your overall score.
I started with a SoFi refinance, moved to CommonBond and then to Earnest. Each time I shorten the time frame and lower my interest but keep the monthly payment at the same rate. So far I’ve shaved 3 years off my repayment time frame and 1.5% off my interest rate since I first started with SoFi.
If you take this route don’t forget to check in every few years to see if you can do better.
A Final Word on Managing Student Debt
Some people are not comfortable with debt. Deciding what to do with over $100k in student loans is personal. If your goal is to get out from under this burden as quickly as possible then start figuring out what you can pay on a monthly basis and go from there.
If possible, don’t let your debt rule your life. The system isn’t what it should be, but it’s the one we have and there are 43 million of us all trying to figure this out. You’re not alone and there are resources out there to help you through.
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