The average American college student leaves school with $37,172 in student loans.
And that’s difficult enough to manage. Can you imagine trying to handle $600,000 worth of loans?
That’s the situation Amber and Danny Masters found themselves in.
And while they were completely overwhelmed by their debt, they’ve taken action to get their lives back on track. With their current plan, they are on track to pay off their debt in just five years.
Here’s how the Masters are getting ahead of their debt (and how you can, too).
Winding up with $600,000 in student loans
When the Masters first started out, their loan debt was very modest. Amber had just $3,500 in loans from her undergraduate degree, and Danny had none.
They both knew exactly what they wanted to do with their future, too. Amber wanted to become a lawyer, and Danny wanted to become a dentist.
Amber found a surprisingly affordable law school and was able to get her law degree for just $44,000. But to increase his chances of getting accepted into dental school, Danny got a Master’s degree at a cost of $60,000.
Originally, Amber was going to wait a year to start school so she could continue working. But at the last minute, she decided to start school as soon as possible.
She rationalized that it meant she would graduate sooner and would thus start making more money faster. But it also meant she missed out on scholarships and other financial aid opportunities that could have reduced her costs.
So before Danny even getting into dental school, the couple already had six figures of debt. And although a dental school accepted Danny like they dreamed, it was a private school that cost over $84,000 a year.
With interest rates as high as 7.9 percent, their student loan balance ballooned pretty quickly.
While in school, Amber and Danny lived relatively frugally. They did not buy much, rarely ate out, and they worked during the summers to earn extra money.
But while they handled their budget well in school, it didn’t occur to them to start making payments while in school. They had heard about income-driven repayment plans and figured that would work for them.
A horrible realization
After Danny graduated in 2016, the couple looked at their debt and had a horrifying realization; their student loan debt had ballooned from about $400,000 to over $600,000 due to interest.
“We were shell-shocked,” said Amber. “We knew we had six figures of debt, but I don’t think we fully understood what interest would do to the balance.”
As a dentist and a lawyer, the Masters make good incomes. But facing such a huge debt balance still felt overwhelming to them.
Amber did tons of research on student loans and their options. Advisors continually told her to consider income-driven repayment plans to get the lowest payment possible.
So they signed up for the Revised Pay As You Earn (REPAYE) plan, where their minimum payment due is just $100 a month on their huge balance.
But as Amber did more research, she found out that REPAYE is not a long-term solution to their problem.
The problem with REPAYE
With REPAYE, after making 25 years of qualifying payments for graduate education, the government forgives the remaining loan balance.
In the case of the Masters, if they kept just to the minimum payments REPAYE requires, that means the government would forgive up to $325,000.
And while on paper that sounds amazing, to Amber and Danny, it was horrifying.
That’s because income-driven repayment plans and loan forgiveness come with one caveat; the forgiven loan balance is taxable as income. So Amber and Danny would owe an enormous tax bill on that forgiven amount.
For the Masters, they decided the tax bill just was not worth it. Instead, they designed an aggressive plan to pay off their debt ahead of schedule.
How the Masters are paying down their debt
The Masters have cut their budget way back to maximize how much they can put towards their student loans.
“We’re living like college students,” says Amber. “We moved to Midwest, where the cost of living is much cheaper.”
“Danny and I keep a strict monthly budget,” Amber adds. “We live off $2,500-$3,000 a month, and everything else goes to debt.”
They do several side hustles as well. From a photography business to selling household items, they access a range of options for earning extra income
They also stick to a meal plan, batch cook, and freeze leftovers to save money on groceries.
For their young son, they only try to buy only the essentials. And much of what they buy is secondhand.
Thanks to their sacrifices and budgeting, they allocate a staggering $12,000 a month towards their debt.
And when they’re more established, they plan to refinance their loans to reduce their interest rate and make more headway against their principal.
It’s more than just about getting to zero
Amber and Danny also hold weekly meetings to discuss their finances and ensure they stay on track. This helps prevent debt-fatigue, too.
“It’s really hard to stay motivated,” says Amber. “We’ve been in school forever and are just now making real money.”
The Masters do give themselves some “fun money” each month to try and keep themselves from feeling deprived.
“We worked our butts off, and we want to reward ourselves sometimes,” Amber explains. “We work in some small freedom money, about $60 a month.”
They also acknowledge that there’s more to their lives than just working at their jobs to pay off their debts.
“We often feel so restricted, so we routinely make sure we go out and celebrate by doing fun, free things, like celebrating milestones with a road bike ride or visiting friends,” Amber says.
“But when we have a moment of weakness, we look at the numbers to keep it fresh,” adds Amber. “It reminds us that going out to eat for $30 worth of sushi isn’t worth it.”
Thanks to all of their hard work, the Masters are on schedule to pay off their $600,000 in student loans in an astonishing five years, saving them hundreds of thousands of dollars in interest.
Amber and Danny also run a blog detailing their journey called to Deeply in Debt, where they share what they learn, how they are paying down their debt, and inspiring others.
“What I’ve found is that most people are like we were,” says Amber. “They want to bury their heads in the sand, and they aren’t ready to think about their student loans.”
“But the best thing you can do is take the bull by the horns, open up the loans on your servicer’s website, and figure out how much interest is accruing each day,” she states. “Just start making whatever payments you can to bring down the interest.”
So if you’re ready to get serious about your student loans and want to find out how much you can save by making extra payments on your loans like the Masters, check out our prepayment calculator below to get started.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
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1 Important Disclosures for SoFi.
2 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 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.54% APR (with Auto Pay) to 7.27% 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 March 18, 2019, 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 0318/2019. 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 firstname.lastname@example.org, 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.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed 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.
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.
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 2.5% effective February 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.54% – 7.12%3||Undergrad & Graduate|
|2.54% – 7.27%1||Undergrad & Graduate|
|2.67% – 8.96%4||Undergrad & Graduate|
|3.23% – 6.65%2||Undergrad & Graduate|
|2.54% – 7.43%5||Undergrad & Graduate|
|2.98% – 9.72%6||Undergrad & Graduate|