Student Loan Payoff

07 Apr 2021

Should I go to college?

You are graduating high school and tasked with making choices that can affect the trajectory of your life. These choices are: Should I go to college, trade school, or learn on my own? What career/degree should I choose? How much debt am I willing to go into and is it justified?

Four year degrees are almost an expectation before entering the workforce, with 66.2% of high school graduates enrolling in college as of october 2019. However, this does not necessarily lead to success when looking for a job. Employment for 20-19 year olds by degree type: associate degree - 71.3%, bachelor's degree - 76%, and graduate degree - 82.3%. It is also true that higher level degrees, on average, lead to higher incomes. Yearly median salaries by degree: high school - $37,024; some college (no degree) - $40,248; associate's - $43,472; bachelor's - $60,996; master's - $72,852; doctorate - $90,636. Unless you have a full ride from scholarships, you will need to take student loans into account while making these choices. A bachelor's degree carries, on average, $27,700 (public college) to $41,000 (private college) in student loans. Master's graduates carry about $66,000 in debt and Doctorate recipients have between $107,000 and $223,000 for a medical doctorate!

    What degree should I choose?

    Living in the information age, we have more opportunities than ever to acquire enough of an education to start a career for the majority of careers. So what careers still require a college degree? A degree is necessary for any medical profession for obvious reasons. A Medical doctorate is not always necessary, however. Physician's assistants can practice medicine (albeit limited in comparison) with fewer years of education. Lawyers are next on the list of careers requiring a college education. Finally, many of the physical engineering fields (architecture, chemical, electrical, etc) require a certain level of proof of competence in the industry through an accredited university. While some of these fields might be flexible, the liability of hiring someone without a certain level of understanding is a high level of risk to the employer for these careers.

    How to find scholarships and the best student loans

    Congratulations, you applied and got into a school! Time to set yourself up for success from the start by racking up the least amount of debt for when you graduate.

    Tips while you are still in school

    When applying for student loans, lenders will happily let your take out more money to cover the cost of living expenses. Before you increase your loan, consider how much interest you will be paying for that dorm room after you graduate. $1000 for a month of rent could end up costing you $137 in interest over a 5-year loan at a five annual percentage rate. That adds up to $6576 in interest payments to pay for a place to live during your four-year degree. See why lenders will gladly loan you more than just your tuition? Now consider meal plans and textbooks and you can see how student loans can balloon out of control pretty quickly. Only borrow what is necessary.

    Student loans come in two options, unsubsidized and subsidized. Unsubsidized loans begin accruing interest immediately white subsidized loans only start to accrue interest when enrolled in college courses less than half time (6 credit hours). You will set yourself up for financial success if you can start paying toward your unsubsidized loans while you are still in school full time.

    One of the most powerful tools to combat student loan debt is to begin paying toward your loan while you are still in school. Having a part-time job is a good option so you can pay your cost of living instead of adding it to your loans. You can also pay toward your unsubsidized loans to avoid interest piling up while you are still working toward your degree. An even better option is to create a side hustle. A side hustle intends to provide passive income with little to no work after getting it set up. This will continue long after you graduate as well as teaching you the basics of how a business works, putting you ahead of your peers and building a strong resume.

    The best way to accumulate less student loan debt is to avoid take those loans out in the first place! Graduating early by maximizing the credit hours you take per semester gives you the most bang for your buck. However, juggling a full semester with a part-time job will be overwhelming. This could lead to lower grades and even missed credit hours through failed classes. So only go this route if you are certain you can maintain the workload.

    Pay down student loan fast

    The best way to pay down loans is to create an optimized strategy for your specific loans. The most efficient strategy is the avalanche method where you pay as much as you can toward the loan with the highest interest rate while paying the minimum on the rest. Once the highest interest loan is paid off you shift everything you were paying toward the next highest interest rate until you have paid everything off.

    The job you get after graduation will soon realize how valuable you are and might offer you a raise to keep your talent at their company. You might be tempted to take that raise and show it off with a slightly more lavish lifestyle or you could live the same lifestyle and get one step closer to financial freedom. Every raise that you get can be immediately applied to your debts or investments, after all, you are already comfortable with your current budget.

    The timing of your payments can also speed up your time to pay off. If you get paid on a bi-weekly schedule, consider making a payment on every payday. This strategy pays off the daily accrued interest more often resulting in a lower total for each additional daily accrual period. Lenders usually offer an autopay option that can make this easier to keep up with. The autopay option usually has the added benefit of reducing your annual percentage rate as well!

    Should I refinance my student loan

    You are stuck with the principal of the loan, after all, this is what you borrowed in the first place. However, you can strategically target the interest amount to save you a ton of money! Refinancing your loan is a great way to reduce the interest you will pay. Refinancing is taking out a new loan with a lower interest rate to pay off the old higher interest loan. After consistently paying toward your student loan and having a better credit usage ratio your credit score will increase. An increase in credit score opens up doors to get lower interest rate loans. Your smart strategy and hard work is paying off now, literally! After refinancing at a lower interest rate, more of your payment is going toward the principal, and the momentum to pay off your debt continues to grow.

    This sounds great but what is the catch? If your initial student loan is a federal loan and you plan to refinance with a private loan, you might lose some of the benefits of the initial federal loan. Federal student loans often have an income-based repayment plan that allows you to pay less toward the loan if you cannot afford the current payments. Student loan forgiveness is another potential benefit of keeping your federal loan. These forgiveness plans are typically based on providing a public service with your education through either teaching, military service, or medical service. Find federal loan forgiveness programs you might qualify for. Also, make sure to keep the required records and fill out the necessary paperwork to ensure that you will qualify after meeting all of the requirements for the specific program.

    Usually, the benefits of refinancing outweigh the benefits of maintaining your federal loan. If you decide that refinancing is your best option here are some great lenders that can offer you a path forward toward better rates: