I am 33 years old and just last week, finished paying for college (yes, that’s right–we made it! We paid off around $100,000 in college, car, and credit card debt. Read more about how we did it here). I got my first credit card when I was 18 years old and took out my first student and car loans when I was 20. For well over a decade, I have had these weights pressing down on me, steering me towards jobs that I had to take because I needed ANY paycheck, then spending money that I didn’t have in order to make myself feel better.
While it’s been an exciting week for us, I can’t help but look back at all of the money that has gone into paying off debt. It’s hard to fathom it when you’re taking out the loans–how in order to pay them off, you will bleed hundreds, and sometimes thousands of dollars of your salary each month. It’s hard to comprehend that the debt will steal your future ability to make the choices you want to make, and will instead force you to make choices out of necessity.
While I explained many of the mistakes that I made in previous posts about student loans, I think it’s also important to determine what they actually cost in the long run. Earlier this year, it was reported that student loan debt in the US has surpassed $1.3 trillion dollars. TRILLION (at least that means I wasn’t alone in my poor decision-making, right?). I know that personally, I went into it thinking that this is just how you pay for college and I’m going to get a good job and these won’t even be an issue. Over a decade later, I can see how wrong I was.
Here’s How Much a Loan Really Costs
To illustrate how a little student loan becomes a monster, allow me to share the fresh hell that was my own student loan repayment experience. This is one of my grad school loans that I took out through Sallie Mae (which later morphed into Navient).
Loan Type: Unsubsidized Stafford Loan
Original principal (original amount I took out): $4810
Interest rate: 6.8%
Date the loan was disbursed: 1/28/2008
Date I started repaying the loan: 8/29/2011
Loan repayment term: 10 years
When I started paying on the loan in August 2011, the principal balance of the loan had grown to $5344.97. That’s an additional $534.97 that literally paid for NOTHING. It did not pay for classes, or books, or supplies–it was just interest added to my loan before I even started paying on it. So first, for those of you who think that the loan company is being sweet by allowing you a “grace period” before you have to start making payments, don’t forget that interest is still building up during that time. In fact, when I look back at the payment history for this loan, my monthly payments didn’t start touching the principal balance of the loan until November 2012, over a year later.
If I plug the principal balance of $5344.97, the interest rate of 6.8%, and the repayment term of 10 years into a loan calculator, it tells me that I will pay a total of $7373.02 on this loan. So my original “small” loan of $4810 suddenly has $2563.02 in interest added on to it. If I take out 2 of those loans every semester (which I did, for the most part), you can see how they quickly add up and leave me as a college graduate with a very deep financial hole.
How to NOT End Up With $100,000 in Debt
Now that the math lesson is over, here are a few suggestions for how to avoid being a 33-year-old paying for decisions that you made when you still thought that ramen noodles and Gatorade constituted a well-balanced meal:
Avoid student loans like the plague: Get a side job. Work during the day and take classes at night. Go to a community college for the first two years of undergrad, then transfer. Go to a state school. Apply for every possible scholarship, even if it’s only $100. Start a 529 or other college savings account. Do whatever it takes to avoid taking out student loans in the first place.
If you’re already out of school, make a plan to pay them off as quickly as possible: Make a budget, then start attacking each student loan with extra payments. Once you pay off a loan (starting with the smallest one), roll that extra money into the next loan. Get them off your plate as early as possible so that you can avoid all of the extra interest payments, and begin enjoying the freedom of making decisions that aren’t based on how much money you owe.