How much do you owe in student loan debt? Enough to consider fleeing the country? (All of a sudden I get why many recent U.S. college graduates want to backpack Europe and never return.) Or worse. You contemplating faking your own death?
According to The Wall Street Journal, the number of Americans with federal student loans grew to 42 million in the last decade. (1.) In that same article, they quote a gentleman whose solution to dealing with his student loan debt is to stretch it out until he dies.
Don’t believe me? Read the entire Journal article. (And BTW … only Federal loans discharge with death. Private loans do not.)
Now that I’ve thoroughly depressed you, you may be asking, this isn’t about retirement or my 401k.
Why Are You at blooom Talking About Student Loan Debt?
We’re addressing student loan debt for two reasons.
First, you’re right, we focus a great deal on helping you with your retirement. We want you to wipe out this student loan debt so you can save more for it. But we also recently launched a personal financial advice service that clients can access via mobile or desktop using the chat feature on the bottom-right of the screen.
Once we launched the service, how to deal with student loan debt was one of the most frequently asked questions posed to me and my advisor team.
We’ve seen so many varied inquiries about student loan debt that we’ll be running a three-part series:
- Tackling debt: This post will help if you currently have student loan debt and you’re looking to pay it off faster (if you’re exploring forgiveness options, I recommend reviewing the following guide.
- Working adults returning to college: Later this summer, we’ll talk about how non-traditional students or working adults who want to go back to school can proactively address (read: avoid or take on as little as possible) student loan debt.
- New college students: Our final post will provide tips and resources to high school students and parents on ways to avoid student loan debt.
Who knows? Perhaps we’ll receive some real-world triumphs of people who’ve defeated this insidious whack-a-mole known as student loan debt (Hint, hint. If you’re a victor, message us with your story. Let us celebrate your achievement with a proper victory lap).
First, the Simplest Thing You Can Do to Get Out of Student Loan Debt
Okay. I’m NOT going to be jerk and say the simplest way is by never getting into student loan debt in the first place. Too late for that.
1. One of the simplest things you can do is set up automatic payments. It works for saving and it works for tackling that debt head on. To sweeten the deal, some services even offer discounted interest rates if you set up auto-pay.
We like it simple here at blooom. Set it and try to forget it.
How About the Most Effective Ways to Tackle Student Loan Debt?
I’ve covered the simplest tip, but what about the most effective. My next five tips could provide the points to pierce that ballooning student loan debt.
Just know the five tips I provide aren’t the only methods to pay off the debt. So many exist that the website Student Loan Hero is completely dedicated to helping student loan borrowers find solutions. The CEO started the company because he saw his own debt grow to $107,00 and needed answers.
2. Snowball and Squash Your Debt
If you’re like the average graduate, you’ll owe about $35,000 in student loans and $3,000 in credit card debt. As I’ve recommended before, use the Dave Ramsey’s snowball method to squash that credit card debt. Then, start applying the money you were paying out to credit cards to those student loans.
Again, if you can increase the amount of your automatic payments, all the better.
3. Wrangle Student Loan Debt and Refinance
See a theme here. Simplify. We recommend wrangling all of that debt into one loan with a lower interest rate. (The technical term for that is consolidation, but hey, we’re based in the Midwest so we like to wrangle things.).
The idea here is that you’ll get one loan with a lower interest rate, so more of your money goes to paying off the actual loan and not the interest.
A couple temptations here you want to AVOID:
- You might consider extending the term and lower your payment. Remember, you want to pay this off faster.
- Don’t take out more than the original student loan balance. There already could be some tax implications with reducing your student loan interest, as it’s only deductible up to $2,500. More importantly, if you refinance your Federal loan with a private lender and take out more than the original balance (say, to fund a trip to visit a college roommate), it eliminates your ability to claim the interest as a tax deduction. Also be aware that converting your loan from Federal to private will negate your eligibility for deferment or forbearance.
4. Consider a job offer that provides student loan assistance
Understand that a job is about far more than salary, especially now. Millennials have become the largest generational group in the workforce. And employers are changing the way they approach culture and benefits.
Financial wellness benefits that help you could be worth quite a bit. Services like Tuition.IO allow employers to offer student loan assistance to its employees.
And these programs may be on the rise. Washington legislators are considering a bill to extend the tax benefit provided to tuition reimbursement to student loan debt, as well.
So, recent graduates, if you are still weighing job offers and you have student loan debt, include financial wellness benefits as part of your overall compensation package.
5. Got Merit, Make a Payment
This one is easy. If you have student loan debt and you receive a raise or a bonus of any kind, put a portion of it against your loan. Ahhh. Now you can buy something nice for yourself.
6. Try On Minimalism
We recommend that people live below their means. It’s a great piece of financial advice not only for paying off your student loans, but also for amassing wealth.
Sounds simple, right? If it were so simple, everyone would do it. Most people can, but it requires some creativity and intestinal fortitude (perhaps both figuratively and literally).
Where to Get More Help With Your Student Loan Debt
Dealing with student loan debt can be unique to each person and getting those suckers repaid may require a combination of solutions.
As I previously mentioned, Student Loan Hero is a tremendous resource. I would encourage you to explore their calculators – and service — to best address your specific situation.
Based on these tips, we’d be looking at the “Lower Interest Rates” and “Save Money” tabs on their calculator.
Remember, before taking extreme measures to duck your student loan debt, we’re here to help – retirement or otherwise. Hit us up in the chat window if you have a question.
- The U.S. Makes It Easy for Parents to Get College Loans — Repaying Them Is Another Story Wall Street Journal. April 24, 2017 https://www.msn.com/en-us/money/careersandeducation/the-us-makes-it-easy-for-parents-to-get-college-loans-repaying-them-is-another-story/ar-BBAhaEG?li=BBnbfcN
Blooom does not provide tax advice. Consult a tax expert for tax-specific questions.
Published on May 12, 2017