Student loan debt can be scary and stressful — but it can also teach valuable lessons about personal finance.
Instead of focusing on the challenges, I asked borrowers to consider what they learned from having student loans. How has their debt made them better at managing money? What advice do they have for other student loan borrowers in their shoes?
Here are the lessons these five borrowers learned from dealing with student loans — and what they hope other borrowers will learn, too.
1. Budgeting is essential to meeting your goals
Zina Kumok owed close to $28,000 in student loans after graduating from Indiana University Bloomington. With monthly loan payments of $350, she quickly learned she’d need to change her spending habits.
“Before I started repaying my student loans, I definitely had a spending problem,” Zina says. “I would buy clothes I didn’t really need or makeup I didn’t wear. Going to the mall and leaving empty-handed was impossible.”
To take back control of her finances, Zina created a budget and stuck to it. “I learned how to live on less and how to stop myself from buying something unless I really wanted it,” she says. “I really learned how to control my impulses.”
For instance, Zina would impose a 24-hour rule before making a big purchase. More often than not, she’d end up forgetting about the item entirely before the day was done. She also learned to identify her spending triggers.
“I would shop when I was bored or feeling sad,” says Zina. Instead of shopping to feel better, she developed low-cost hobbies. “Right now I’m really into drawing, which is really cheap to do,” she adds. “I also like sewing, which is pretty affordable once you get a machine.”
Plus, she learned the value of a good Netflix session with friends.
“Honestly, hanging out with people is the best way to feel better, especially if you hate your job or are feeling lonely,” says Zina. “I watched a lot of Netflix with friends when I was first paying off my student loans — it wasn’t any worse than having a few drinks at the bar, but much cheaper.”
Thanks to her budgeting efforts, Zina paid off her loans in just three years. Now she helps other young people learn to budget and pay off student debt on her blog, Debt Free After Three.
2. You can save money while paying off student loans
When monthly student loan payments eat up a big chunk of your paycheck, it’s hard to think about saving. But building an emergency fund — and even putting money aside for retirement — can still be a priority.
Clemson University graduate Ciara Hautau learned to build up her savings account, even as she paid off major student debt. “I have made a conscious effort to put half of my paycheck into my savings account,” says Ciara, who now works as a marketing coordinator. “My rule is to not touch anything in my savings unless it’s an absolute emergency.”
Saving so much has not been easy for Ciara, who lives in New York City, one of the most expensive places in the U.S. “Living in NYC and having student loan debt is like having an anchor tied to your ankle,” she says. “Sometimes you feel as if you are drowning, but there are ways to manage.”
For Ciara, the expense-tracking app Mint saved the day. “I started tracking how much I was spending on food, going out, luxury items (such as makeup), gas, etc.,” she says. “Every week, I’d set a percentage of how much I wanted to spend on each of those categories and checked my Mint account frequently to make sure I wasn’t going overboard.”
By tracking her spending, Ciara was able to save while paying off her loans. “Balancing loans and big goals can be stressful and seem overwhelming, but breaking up your goals into digestible benchmarks and developing a plan week by week, month by month can make the process more manageable,” she explains.
Plus, now that she has money in her savings, Ciara is financially protected in the event of an emergency or unemployment. “Not touching my savings provides a huge amount of comfort in case anything should happen with my job,” she adds.
3. Extra loan payments cut down interest costs
It’s tough to make extra payments on your student loans when you could use your money in more fun ways. But if you can make extra payments on your student loans, you’ll get out of debt ahead of schedule. Plus, you’ll spend way less on interest in the long run.
“Snowball your loan payments by throwing as much money at them as possible,” says Jordan Slavik, a University of Maryland alum who took out $30,000 in student loans. “The more you are willing to contribute to your loans each month, the less money you are wasting on interest payments, and the less the interest payments will be each month as well.”
Let’s say you had $35,000 in student loans at a 5.70% interest rate. If you paid $383 per month on the standard 10-year plan, you’d pay $10,998 in total interest. But if you could make an additional $73 payment each month, you’d pay only $8,637 on interest. Plus, you’d get out of debt two years sooner.
“By only paying minimum payments, it may take you five to ten years of payments and thousands of extra dollars in interest payments,” says Jordan. If you’re able to increase your payments — whether occasionally or on a regular basis — you could save on interest and move much closer to a debt-free life.
4. Lifestyle inflation can kill your budget
As you gain professional experience in the years after college, your paycheck will hopefully increase to match. But instead of upgrading your car and apartment right away, consider sticking to the same budget you had right after graduation.
That’s how Kevin Han, the attorney behind personal finance blog Financial Panther, was able to pay off his student debt. “The key lesson I learned from having student loans was the value in avoiding lifestyle inflation,” he says.
“I’ve always pointed out that most people seem to live perfectly fine when they’re a student, but then inflate their lifestyle dramatically once they get their first paycheck … If you can just live like a student for a few more years, you can really set yourself up well financially,” he adds.
By sticking to this principle, Kevin was able to shed his student debt quickly. “I personally paid off $87,000 worth of student loans in just two and a half years by choosing not to live like a ‘big shot’ lawyer,” he says.
By resisting the urge to inflate your lifestyle all at once, you can free up more of your budget to save and get rid of debt.
5. A long-term debt strategy is crucial
Lots of borrowers feel hopeless and stressed about their student debt. And while the challenges of student loans can’t be minimized, it is possible to pay them off over time. After years of barely making a dent in her debt, Adrienne Ross proved to herself she could turn things around.
“By the time my husband and I had graduated from college, we had racked up close to $30,000 in student debt,” says Adrienne. “Fast forward a couple of years and imagine our surprise when we realized that our regular monthly payments had barely moved the balance we owed.”
Although she felt discouraged, Adrienne was proactive about changing her payoff approach and settled on the debt snowball method.
“We decided to jump start our repayment plan,” she says. “We started with the smallest loan first and threw every bit of extra cash we could scrape together toward paying it off. Paying off that first loan felt amazing!”
Once they had that first taste of success, they were motivated to continue. “Each loan that we paid off gave us the excitement and confidence we needed to keep going.”
For Adrienne, the snowball method made her student debt manageable. “Breaking down the process of repaying our loans in this way taught me that I can accomplish anything,” she says. “The key is to break big goals into small steps and track your progress.”
Hopefully, the lessons above can help you get out from under your student loans. Even with a mountain of student debt, every small step will get you closer to financial freedom.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.30% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.47% – 6.30%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.69% – 7.21%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|