A few years ago, I paid off my last student loan. A year before making that final payment, I was paying my student loans monthly like most people. However, I took advantage of programs at work and budgeting to put more money towards my balance.
When my husband and I decided to purchase our current home, the mortgage lender gave me an ultimatum. I needed to lower my debt to income ratio before we closed. So my student loan payments had to go. With that pressure, I began to tackle student loans with more intensity on my end.
In 2018, student loan debt reached a historical high of $1.37 trillion. With so many students graduating with more debt than their careers can repay, it’s important to share this advice.
Student loan debt does not have to be a way of life, and below I share some ways to avoid it, have someone else pay down your debt, and how to pay it off faster so you can reallocate your debt payments to building wealth.
Before College: Find The Free Money
Students should avoid student loan debt at all costs. The best way to do this is to start your search for scholarships early. I started applying for scholarships in my junior year of high school. I applied for a handful of scholarships at the time. However, during my senior year, I applied for over 25 scholarships and wrote letters to colleges requesting they waive my application fees.
All but two colleges said yes to waiving my application fee and I was awarded three scholarships. When it comes to scholarship applications, it’s a numbers game. You have to apply to three to four times as many scholarships as you hope to earn. My scholarships were a mix of academic and financial aid- based awards.
Before I decided where I would attend school, I looked at my acceptance packages, scholarships received, and financial aid offers. I decided to attend a private university that gave me the most money and was well known for my field of study.
When you are deciding where to go to school, weigh the pros and cons of going to a private school versus a public school. Review your acceptance packages closely. If your school is offering you scholarships, grants, and loans, make sure you understand how much of the money doesn’t require repayment versus loans, which require repayment. Ask questions if anything is unclear. Then pay your loans back – and on time to protect your credit.
In College: Keep Costs Down & Work
Although I received scholarships and financial aid from my school, I still had to contribute to my education. Since the money I received did not equal a full ride, I took out federal loans and worked two jobs during my first two years of college.
Before my first semester, I signed up for my school’s payment plan so the balance due could be paid over the next ten months. I used the income from my jobs to make the monthly payments and received some support from my mom too. Working helped me avoid applying for private loans to cover the balance due. It also ensured I had money for groceries and my cell phone bill.
In college, I signed up for the lowest meal plan and made my own food to save money. My groceries were based on weekly sales at the store. If meat was on sale I bought it, if not, I made vegetarian meals. I also didn’t do a lot of shopping and used cash for my expenses to avoid overspending.
Most importantly, my search for scholarships did not stop after I got to college. I kept applying for scholarships of various amounts. Some covered books, others a full class. But it wasn’t until the end of my sophomore year that I struck gold. I applied for a fellowship, like this one, that if received would cover two years of undergrad and one year of graduate school. Plus, it included two internships and a conditional job offer. Today, the program has changed a bit but still pays towards a graduate degree and includes the two internships and a career offer at the end.
In 2002, 400 people applied for twenty slots and the application process spanned almost a school year. However, in 2003, I was told I won and my days of working two jobs were over. Thanks to this opportunity, my student loan debt was limited to $25,000.
After College: Prioritize Your Debt and Tackle Student Loans
When I finished grad school, I was ready to start my job and pay down my debt. My first payment was due six months after graduation. In the initial letter from Navient was an offer to put my loan payments on autopay in exchange for a lower interest rate.
This was a win-win. By agreeing to put my loans on autopay, the government knew they would get paid on time. Plus, I would benefit from the lower interest rate in the long run by paying less interest over the life of the loan. Of course, I took the offer.
Then, I took the free money my job was offering, too. Shortly after starting my public service career, I learned about the student loan repayment program. Turns out federal employees can qualify for student loan forgiveness programs if they commit to a public service career.
To qualify at my agency, I agreed to go overseas and work in a country on a special list, provided proof of my student loan debt, and promised to serve at least three years after receiving the money. Once my paperwork was approved, my job paid $5,000 directly to my student loan lender.
The federal government is not the only one paying off student loans. Private companies like Fidelity, PricewaterhouseCoopers, and Staples have similar programs. Before accepting your first job offer, ask what employee benefits are offered. Several private companies offer student loan repayment programs.
If you are considering loan consolidation, make sure you read the fine print. Consolidating your federal student loans could make you ineligible for federal loan forgiveness programs.
Finding Financial Freedom: Getting Debt Free
With the contribution from my job, I was on track to finish paying off my loans earlier than planned. However, it was the desire to purchase my current home that lit a fire under my feet. As I said earlier, we had to pay off my student loans to qualify for a home loan.
To accomplish this task, my husband and I reviewed our budget and tightened up our spending. I went on a shopping freeze and sold items I wasn’t using at a consignment shop. The money we saved went to paying down my student loans.
To lower our grocery bills, I ramped up my coupon clipping and started using grocery store apps. I ate more conservatively when I traveled for work. At the time, I could find myself on the road two to three times a week. While traveling, my job paid a set amount per diem, or money each day, to cover food. I could eat at a fancy restaurant or fast food and the per diem amount would not change.
I started buying groceries to store in my hotel room and ate healthy but inexpensive meals on the road. When I was home, I stopped driving to work. Instead, I took the bus or got a ride with a carpool a lot closer to our home.
For our birthdays and Christmas, when folks asked what we wanted I said gift cards. The gift cards were used to pay for family expenses. The money we saved on personal expenses, gas, and food went towards the loans. This discipline helped us pay my student loans off ahead of schedule.
Generational Wealth – What Parents Can Do For Their Children
If you are a parent, the best way to prepare your child for college is to save for their future. Even if your budget does not allow you to save enough to pay for a full college tuition, save what you can. Your savings may not pay for the entire cost but could pay for a class, books, or room and board.
If you don’t care about the tax benefits associated with investing in your state’s 529 plan, you could also save in another state’s plan, which may offer more benefits. The point is to use this investment vehicle to earn interest on your money, which means more money for your future college student. In my state, contributions can be as little as $25 a month.
One thing you should definitely not do: borrow from your retirement plan to pay for your child’s education. Students can seek scholarships and loans to pay for their degree. However, no one is going to give you a scholarship to retire. So do whatever you can to avoid using your retirement funds for anything other than your retirement.
Are you trying to figure out a strategy for your student loans now? Have a tip or trick to share? Leave a comment or join our community and let’s build together.
Acquania Escarne is the creator of The Purpose of Money, a community of women building generational wealth for their families one dollar at a time. As an entrepreneur, real estate investor, and licensed insurance agent, Acquania has always been passionate about financial literacy. On her website, Acquania blogs about ways to help you improve your money habits, create wealth, and invest in real estate. Follow Acquania on social media for daily tips.