Stories of how student loans are affecting millennials lives and what to do about it.
With graduation around the corner, millennials are leaving college with A LOT of student loans.
According to a report published on Feb 27, 2018, by Debt.com, the national student loan debt hovers over $1.2 trillion with the average student loan debt of $29,400 per borrower. Student loan debt has risen nearly 70 percent over the past five years.
With these loans comes the feeling of being weighed down. Millennials have to delay pursuing their dreams because of the heavy burden. They don’t have the option to fail. They’re stuck at a job they don’t like to afford the monthly payments.
Student loans are a real problem
Jennifer moved to another state to attend college. She figured it’d be cheaper to go to school in a more affordable place. She wasn’t sure what she wanted to do as a career but always had a passion for acting. She completed four years of school and graduated with her degree in fine arts. This is a path many students take today. But her loans are going to weigh her down for the rest of her life. She didn’t apply for state residency and paid out of state tuition for four years. She left college owing $150,000. Students in her major make $23,000 after graduation. The interest is going to grow $6,000 a year. If she pays less than that per year she will never pay them off.
You can pay them off
Anthony paid off $30,000 in one year by doing freelance work. He left college with a degree in engineering and was paid a handsome salary in his first year. But he said the majority of the money he used to pay off his loans was from jobs he found on Upwork. He avoided lifestyle inflation. He continued to live like a broke student after college in order to pay off his loans. He said it helped him sleep better at night knowing his student loans were gone. Here was Anthony, who paid off $30,000 in one year — which is incredible by the way — and his peers were buying new cars going on fancy vacations because they deserved it.
Are student loans really worth it?
You don’t need a degree to have your own business but you need a degree to work for someone else.
Our culture says, to be successful you need a degree from the most expensive school. If you don’t know what you want to do, go to college, take out loans, and “find yourself.”
I attended business school to learn more about finance and accounting. I met students who wanted to study entrepreneurship. They took classes related to starting a business but had never considered starting their own. Marketing students who have never done marketing before when there is plenty of opportunities for them to help local businesses. These subjects are studied in a classroom from an outdated book instead of gaining real-world experience. With these degree’s they could get more experience in a few weeks starting their own business than they would in one year of studying it.
“College is an expensive place to find yourself”
Research a school you can afford. Attend a two-year university and then transfer to a four-year school to save yourself thousands. I believe education is important but it’s not the only way to be successful. You can learn more from Google for free than you would from any of your college courses. But if you want a college degree you have to pay your dues.
I have a college degree because I like options. I was not the smartest kid in my classes but I enjoy learning and I took what I learned in class and tried to apply them. I was not focused only on the grade but on the real-world application. I used college as an opportunity to meet people. Unless you pursue a degree that you know will make you more money, student loans may not be worth it. It would have made no sense for me to pursue my degree if I had to borrow tens of thousands of dollars to get it. I was able to graduate with a business degree debt-free from the most expensive school in my state.
Strategies to Pay Off Your Student Loans
You may have had to borrow money to pay for school and that is ok. The hardest situation to be in as a college student is having parents that make too much income to qualify for financial aid but that aren’t willing to help you pay for school. Everyone’s circumstances are different and you may have to take out loans.
What is the best way to pay them off? This is a good, better, best approach to paying off your student loans.
In this example, you want to become a Physician Assistant so you borrow the national average of $168,000 to do so. You plan to make between $60,000 – $80,000.
In the “good” scenario you refinance and consolidate your loans over a 30 year period and your monthly payment in $1,056. The important thing is making sure you pay them off and it may take you 25 years to do so. But there are better ways. You get to decide which one is best for you based on your personality.
In the middle example, you get super serious. You pay off your loans in 5 years. But you pay a nice mortgage payment to make that happen and unfortunately, most people don’t have the focus and determination to pay over $3,000 a month. If you can’t stand having debt and your willing to do what it takes to get rid of it, this is the best option for you.
In the example on the right, you stick with the normal 10 year payback period and you make the minimum payment. Instead of shoveling all of your extra money into paying off your student loans, you invest it in the market.
You decide which option is the best for you. The math suggests the strategy on the right is the most optimal IF you take the difference and invest it. But we know that personal finance is emotional and it feels sooo good not to have any debt. In that case, the middle option is best for you.
Join the Student Loan Debt Movement
If you’re tired of being weighed down by your student loans I’m excited to support Robert The College Investor this month with the student loan debt movement he put together for the month of March.
The goal: to pay off a cumulative 1 million dollars in student loan debt in one month. I would love to track your progress and give you a shout out if you crushed your student loan debt this month.
When you update your numbers- mention Simplifinances in the “Tell us how you did it box.”
It’s time to loosen yourself from the chains of student loans debt and do what it takes to set yourself up on the path to financial independence.
If you like to create a plan for your student loans, schedule an appointment with a student loan advisor here.
Please comment below if you have anything to add to the discussion!