There’s a famous yet fatalistic adage that says: “Nothing is certain but death and taxes.” Whoever said that should’ve also included student debt because it’s just as inevitable.
Last year, a Forbes report looked into the numbers regarding student debt in the U.S., which looked grimmer than the coronavirus. The overall debt as of that year stood at USD$ 1.56 trillion from 45 million borrowers. If student debt were a business, it would be the fifth most valuable company in the world, just below Amazon.
How does student debt grow so big that it rivals Jeff Bezos’s bread and butter? According to Jarrett Skorup, director of marketing and communications at the Mackinac Center for Public Policy, the problem traces back to rising tuition fees. Federal spending and demand for higher education have spurred the increase, quintupling since 1985.
Skorup adds that there won’t be an easy fix to the student debt crisis. With the right decisions and actions, however, student debt can be manageable. Here are some tips to consider, though keep in mind that some of these might entail sacrifices on your part—like the first one.
1) Make a Lifestyle Check
Sit down and think about the things you’ve spent on for the past several years. Then, ask yourself if you can live without them. Will depriving yourself of your daily Frappuccino or weekend night out with friends make you miserable? If not, then those luxuries can take a backseat for now.
In a survey of over 2,000 adults in 2017, NerdWallet found that three in five had to make sacrifices in their current lifestyle to make the payments. It didn’t matter if they made less than USD$ 50,000 or more than USD$ 100,000 a year; they had to give up a few things. The top five concessions are:
Saving money for emergencies and retirement is too important to be held back. It just goes to show how serious the student debt problem has become. As much as possible, only give up non-essential expenditures. Good friends will give you other opportunities to hang out.
2) Get Professional Help
Settling student debt is a tall order. According to EducationData.org, one in ten Americans default on their student debt, amounting to USD$ 124.4 billion. Of these defaults, one in ten do so within the loan holder’s first year of graduation.
Defaulting comes with horrific consequences, from being ineligible for benefits to garnishing your wages. If that’s not scary enough, lenders can take the matter to the courts, resulting in losing your home or other possessions. Some colleges and universities are even known to withhold releasing documents essential in applying for a job, like your Transcript of Records.
If you owe somewhere between USD$ 20,000 and USD$ 1 million, consider getting student loan help from professional planners. They can help formulate a sound strategy for paying off the debt down to the last cent. Depending on the plan, you may even not have to give up almost everything.
3) Pay Above the Minimum
You might think that this tip doesn’t make a lick of financial sense. After all, you’re struggling to make ends meet with student debt hot on your tail. But, experts have crunched the numbers and say that it’s a step in the right direction.
What most people fail to consider when making minimum payments is interest. Say you took out a student loan worth USD$ 50,000 with a 5% interest over ten years, which gives you a minimum due of USD$ 530.33. Run these numbers on an online calculator; by the time you’ve paid the loan, you’ve also shelled out over USD$ 13,000 in interest.
Now, input the same numbers again, but this time, add an extra USD$ 100 in the monthly payment. Notice that the interest amount has dropped by almost USD$ 3,000, going to the principal instead. The more you pay above the minimum, the lower the interest amount and the faster you can pay it off. But, be careful not to overdo it to the point of forgetting your other obligations.
If you’re reading this before beginning your college life, you might tell yourself: “I just won’t take out a student loan, then.” If you’re aiming to get into an Ivy League school, let alone the Big Three, that’s easier said than done. Whether or not you choose to take out a loan, poor handling of your finances can leave your life in ruins.
Living within your means is generally good advice for today and the future. Always keep in mind that you have control over your money and you alone.