Your Incredibly Expensive Brain
So, you went to grad school and have huge monthly bills to prove it. Here's how to get things moving
When I was in graduate school, I was naïve enough to think the hardest part was graduating. Ha! Boy was I in for a rude awakening! See, during the program, all that was discussed was how amazing our lives were going to be after graduation. All my classmates, myself included, had visions of fabulous cars, giant houses, an endless supply of the latest apple products, and meals that didn’t include ramen noodles.
We were blissfully ignorant when we signed up for student loans with interest rates over 8% and said, “just get me out of here!! I’ll figure it out from the comfort of my pool when my cool new life starts.” Back then, none of us realized that those interest rates were brutal. Afterall, they seemed like low enough numbers.
Fast-forward to six months after graduation when the bills started coming in.
The bills were huge! We were told to sign up for the ballooning payment plans which meant that with time the payments would increase. In theory, we would be making more money as time went by, so we would be able to swing the bigger payments. What nobody was expecting was the economy crashing, thus making even the smaller payments really hard.
This is when I learned that the real world also includes a ramen heavy meal plan.
Here are five ways to manage education debt and achieve your goals.
1. Almost everyone is in the same boat
According to the Pew Research Center, almost a quarter of graduate students with outstanding student loan debt owe $100,000 or more. Did you know that the Federal Reserve Board of Washington, D.C. linked the increase in student loan debt to a decrease in homeownership rates during the first five years after graduation? Don’t compare yourself to your parent’s generation. If you are struggling with student loan debt, you are not alone—but you must do something about it…other than complaining to people who don’t have grad school debt.
2. Look into refinancing that monster
Refinancing is when you work with a private lender to get a new loan that will pay off one or more existing loans. This can help you repay your loans faster and cheaper. Who doesn’t like that?
On the positive side of it, refinancing is great in that it lets you choose the monthly payment that you can manage by adjusting the length of the loan. Another cool perk is that by combining your loans into a single personal loan, you have the benefit of one monthly payment from one lender. Those bills can be managed by automatic payments so you’re always paying on time.
Here’s what sucks about refinancing, a refinanced loan does not include the same special perks that your original loans came with. Those benefits are forgiveness, forbearance or income-based repayment. A financial professional can help you figure out if refinancing makes sense. Be ready to talk to them about your goals, existing loans, potential new loans and financial situation. I’m not telling you to take a Xanax with you, but you may need a hug afterwards.
3. Learn the rules and know your interest rates
Take the time to read the terms you signed up for and their payment schedules. Paying off high-interest loans will increase cash flow, so you can save more and improve your borrowing power. Confused? Here is what it means, if you have multiple loans, consider making larger, more frequent payments to your largest interest loan first so you can reduce your balance and interest charges--and whatever you do, don't default!
4. Set your budget
Make a realistic budget--a financial plan that will help you understand your monthly expenses, bills, and short- and long-term goals. This way, you can more effectively manage your money and determine how much income you can devote to repaying your student loans. After all my other expenses have been paid, whatever is left in my piggy bank goes toward paying off my higher interest loans. Some months I make a big dent, other months, barely a sneeze.
5. Find a smart banker
If this whole thing feels daunting, it’s okay, find a personal banker with experience in this stuff. A personal banker can help with advice and access to financial products and services tailored for you. You went to grad school for a better future, have someone help you get there.