With the cost of education constantly rising in North America, millions of students are taking out loans to cover tuition, books and cost of living.
Although it is fairly easy to obtain a loan for college, it may not be quite as easy to repay it when the time comes. The following personal account will outline some easy tips for paying off student loans quickly and efficiently. I was able to repay my loan in five years, rather than the usual decade.
Since I paid if off quickly, I did not pay as much interest and thus brought down the total amount. I also found a stress-free way to use the skills I learned in college to repay the money it cost to attend. If you have an outstanding loan or are considering taking one out, you probably want to read this article and make a plan for repayment as soon as possible.
I was fortunate enough to have a college fund that covered my undergraduate studies so I thought I would never have to deal with the trials and tribulations of student loans. However, upon completing my Bachelor’s of Arts (majoring in Psychology) in Canada, I decided to apply to graduate school in Hawaii.
The program was exactly what I was looking for and who wouldn’t want to leave the cold winters behind for palm trees and ocean views? I took out a loan with the government of Quebec and jumped on a plane. I’ll admit that I never put much thought into the loan. The words “interest free” popped out at me and it sounded like a great idea.
Over the following three years I managed to rack up over $60,000 in loans. My loan was not only paying my out of state tuition, but also the incredibly high cost of living in Hawaii.
Rent alone was $700 a month, and I rented a bedroom in a dingy walk-up apartment. The dollars added up as I studied, partied and enjoyed life in paradise. My plan was to get my PhD, find a high paying job and then pay a monthly payment for ten years until my loan was paid off.
Three months before I received my Master’s degree, my son was born. While this was the best thing that had ever happened to me, it certainly was not in my plan. I finished up with the Masters and decided to forget about the Doctorate.
Now I was a new mom newly married, staying home with my baby and got a letter in the mail stating I would have to pay $655 a month for ten years. I spoke with my husband and we decided that would not do.
One important issue I want to mention here is: there was no interest while I was in school. That does not mean no interest ever. In my first year of paying $655 a month, I paid off only $7000 from the total. That’s over a thousand dollars of interest in one year!
There was just no way I wanted to commit to ten years of these payments and I couldn’t stomach the fact that some bank was going to make ten grand off of me simply because I didn’t have the money to pay for grad school. I needed a plan and I needed one fast.
I spoke with my uncle, who is an accountant as well as my husband and we worked out a budget.
Everybody’s financial situation is different but here is how I paid off the rest of my loans in only four more years.
Step one: I got a part time job on the weekends. Since my husband and I had planned for me to stay home with the baby, his salary was enough to cover the essentials. I worked at a retail store on the weekends and picked up some freelance tutoring in the evenings.
I was able to bring in approximately $ 800 a month, after taxes.
Step two: We budgeted $100 a month from my husband’s salary to go towards my loans as well. In order to afford this, we had to get serious about coupons, shopping at Costco (rather than regular grocery stores) and conserving utilities. You would be surprised how much money you can save by line drying your clothes and air drying your dishes.
Step Three: Use any lump sums to reduce the total loan amount. This included our $4000 tax return, birthday money and the payout from a one time writing gig I scored with a novelist.
These lump sums are really the key to quick loan repayment because the more you can pay at one time, the less interest you will pay in the long run. When we had a lump sum to contribute to the loan we would scrap together every dollar we had to add to the amount.
Now here’s the math. Of course your situation will be different but you can see by my situation that five year repayment is definitely doable.
$800 (my part time work) + $100 (from my husband’s salary) = $900/month x 4 years = $43,200
Tax returns ~$4000 x 3 years = $12,000
Two other “lump sum” deposits ($1200 + $3100 = $3300)
Total amount repaid in four years: $58,500
So now you see how I repaid it but I have left out one major factor… was my education worth it?
I can answer the above question with one word – no. Although I truly enjoyed my time in graduate school and I did learn a great deal about Psychology, I am not qualified for very many high paying jobs and I have chosen not to take on a career so I can stay home with my children.
In short, I spent $60,000 for no reason at all. I am, however, extremely proud that I was able to pay it off so quickly and I no longer have to worry about whether or not it was worth it.
Yes, I worked weekends for four years but it’s over and now I still work weekends but we use the money as “play money” for dinners out, vacations and fun purchases. Even more importantly, I learned how to budget and how to pay off debt efficiently. I think it could be argued that the skills I learned through my loan repayment are more useful in the real world than any skills I learned in school.
My advice to those who have student loans is to make goals and stick to them. Your number one focus should be on paying it off FAST. Speed is the key because those interest dollars to not rack up quite as high.
My advice to anyone who is considering taking out a student loan: do some research on the degree you are going for. Make sure it will be lucrative enough to make the loan worth it. Finally, everyone should have a back up plan.
You never know what life is going to bring, but defaulting on a loan should not be an option. Even in a deplorable economy, there is always a job at the local mall or fast food joint that can help you get that debt down to zero. I hope my experience will help you make wise decisions when it comes to student loans and repaying them.