Left Alone, Student Loans Will Destroy Your Finances.

So you have student loans? Don’t worry, you’re certainly not alone. There are 44 million other Americans who have an average debt of just over $37,000 in student loan debt also. But unlike many, who are resigned to their seemingly miserable fate of payments until they die, you actually want to get rid of yours – otherwise, you wouldn’t be here.

Before we get to destroying your student loans, let me talk a little bit about how they work and why student loans are different from every other type of debt.

First, How You Got Here.

There are two ways to acquire said student loan debt. You can fill out a FAFSA (Free Application for Federal Student Aid) and apply for a federal student loan. These loans are administered by a bank or other loan servicer chosen by the Department of Education; for example – Navient. Or you can apply for a private student loan from a private bank or other lending institution.

In either case, the terms and interest rates vary from loan to loan. Though the terms on the federal student loans are usually better as they can be subsidized by the federal government.

During college, you didn’t have to pay any of loans back. But interest may have continued to accrue depending on the type of student loan you have. Once you graduated, or left college for more than six months, your payments may have started. Again, these terms may vary depending on the actual student loans you have.

It’s very important to read through the terms of your student loans so you know exactly when your payments should or did start. Also, you’ll need to know who services your student loan and who to send your money to.

Student Loan Education and Limits?

As an aside, before you applied for your student loans and received the money, were you educated in the repayment terms of your loan? Did you know what the minimum payment would be when you graduated? And did you also know what kind of salary you would need to make those payments and pay living expenses too?

I didn’t. Of course I also had very small loan amounts compared to most of you. My student loans totaled somewhere around or under $10k.

But in my opinion, it is far too easy for people with questionable decision making abilities to borrow great sums of money. It’s not that you can’t make good decisions at 18, it’s just that you rarely have the life experience to choose wisely for both current and future you.

I think there should be a limit to how much you can borrow for your English Lit. or Teaching degree. I’ve read far too many stories of teachers in particular who ended up with tens if not hundreds of thousands of dollars in student loan debt, all while making $30k – $50k per year. And though it sounds like I’m singling out teachers, there are other degrees as well that aren’t worth spending $60k, $70k or more to get.

Also, some of you went on spring break with your student loan money or bought a new car – “to get around campus”. Maybe it was before you really understood what you were doing. But that just goes to college students’ decision making. In my opinion, student loans should be strictly used for tuition.

What Makes Student Loans Unique.

When you take out a student loan, you are taking a risk (as you do with all debt) that you may or may not be able to pay back the loan later. However, in the case of a student loan, you are betting that because of the degree that you were able to buy with your student loan, you will command a higher salary. Which will in turn enable you to repay your loan back, hopefully quickly.

So instead of borrowing money to buy an asset like a house, car, or real estate or a consumer item like a couch, tv or bicycle, you are buying knowledge. And hopefully this is knowledge from a worthwhile degree that the average person won’t have. This is what should make you more valuable in the marketplace. And in turn, your salary would confirm this. I wrote an article recently about a few choices than can have a huge effect on your financial future, and your choice of career is one of them.

Another unique facet of student loans in particular is that they are most likely not bankruptable. It is very difficult, though not impossible, to discharge your student loans by filing bankruptcy. I am certainly not an expert in bankruptcy laws, so please contact an attorney if this is the situation you find yourself in.

How to Eliminate Your Student Loans.

Now we get to it!! You may not like what I’m about to say, but it’s the truth.

I wish I could tell you that there was an easy way, or perhaps some secret to getting rid of your student loans. But there isn’t. You’ll have to suck it up and continue to make the payments. And if you have extra money, you’ll have to make principal payments to pay them off early. And this is exactly what you should do.

You can’t just stick your head in the sand and hope that they go away. You have to do it!

Hopefully, you invested wisely with your student loan money, and received a degree with which you acquired a job that pays well. If not, I won’t lie, it’s going to be tough. Of course it depends on your specific situation and the amount that you owe. But remember, you do owe it. Ethically and morally, you need to pay it back.

So, work the minimum payments into your budget. And then take your extra money and start throwing it at your debt, snowball style. Just make sure you’re on top of it. Make sure your extra money goes toward the principal, and not towards the next payment. You don’t want to be paid up months in advance. You want to reduce your loan balance instead. That’s really all there is to it. It’s simple, and yet so hard.

Most borrowers have close to the average to pay off. However, if you have mortgage level student loans, you have an extreme debt emergency! You need to attack that debt immediately! Don’t rely on PSLF (Public Student Loan Forgiveness) programs to bail you out in 10 years. You need to take matters into your own hands, and get rid of that debt sooner. Check out this article from CNBC about PSLF that is not encouraging. Only 96 people have successfully had their loans discharged!! Out of over 30,000!!

Take matters into your own hands, and eliminate your student loans once and for all. Click To Tweet

If PSLF was your plan, I’d encourage you to reconsider. You took a lower paying job, so you could keep your student loans around for a decade or more, and then maybe qualify for them to be discharged after all that? I’d want more control over my life than that.

For more reading about public service loan forgiveness, check out this article over on deeplyindebt.com.

Some Closing Thoughts

You can do it. You may have to rethink your career choice, or perhaps take some side jobs, or forgo a house purchase. And none of those things will be easy. But your past choices led you to where you are. And your better future choices can help lead you out of the mess you’re in.

Student loans are in my opinion far to easy to get, and much too destructive keep around. The payments will eat at your ability to build wealth. Get rid of them as soon as you can.

Do you still have student loan debts to pay off? How’s it going? Are you feeling discouraged?

Drop me a note and let me know. And thanks for sharing and reading.

Author

Chris is the original Cash Dad. He's a father of 3 and a mechanical engineer by trade.

1 Comment

  1. You are right, it is scary to think that 18 year olds have so much debt. But it probably doesn’t seem like a big deal because it just a piece of paper with an amount until it starts eating up your income. Let’s make it different for our kids so they won’t have any.
    Love you!
    Kate

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