Oh, student loans… where do we start? The average college graduate is over $20,000+ in debt when they graduate. Not only do college grads graduate with a load of debt, but they also graduate into a terrible job market. I graduated from undergrad early in December 2008, right when the US economy began to tank. Luckily I had a part-time job at the mall, but it took me over 3 months to find a “real” job. My first “real” job was a temp position at a large biotech company. I worked there for 9 months. When I realized that the company was not going to hire me permanently, I began my job search again. Finally, I secured a full-time job in January 2010, where I worked for close to 4 years at a small biotech company. In May 2010, I began my Masters in Public Health program, which I finished in December 2012. I once again I began my job search in 2012 to find my first “career” job in public health. I had several interviews where I was the second choice candidate, which was nothing short of frustrating. In September I landed my current job that I absolutely love.
Now, what does my job search have to do with my student loans? A lot of reasons! The day you sign your name on the loan paperwork, you’re stuck with them until you pay them off or die. Even if you go through bankruptcy you are still stuck with your student loans! The government has designed multiple repayment plans based on your current income to help (or ensure) you pay your loans back.
When you graduate college you get a grace period of 6 months before your loan payments kick in. The intent for the grace period is that you will find a job, settle in and make some money so you can actually pay your loans back. With the current economic status in the US, many students haven’t found a job during that time period and/or are unemployment. Not a fun position to be in as you can imagine.
My undergraduate loans kicked into repayment around May 2009. I was taking several classes at the local community college at the time so my SallieMae loans went into deferment. However, I continued to pay my private loan and Perkins loan throughout my time in school. Once my classes were done, I began paying the minimums on my SallieMae loans, which at the time were about $144 a month. When I began grad school, my federal loans once again went into deferment. I was lucky that my loans were all Stafford Subsidized loans, meaning that the government picked up the tab on the interest while I was in school. Throughout my grad school years I only paid my Perkins Loans (which I paid off about a year ago!) and my private loan (which I just paid off in January with a little help from my father).
During the summer of 2012 I didn’t take any classes because I had taken all the courses offered during the summer term. The school made me take a “leave of absence” for the summer because I was not taking any classes (this was a major pain in my butt and I had to sign a bunch of pointless paperwork) and to my surprise SallieMae immediately sent me a bill for my undergrad loans! I was not ready for those payments during that summer, but I managed. Once I began my final semester in September, my loans went back into deferment until January. I finished my MPH degree in December 2012. SallieMae wanted money again on January 2nd. This time it was about $150 a month, which I have been paying every month since then. My grad loans through Nelnet (plus one undergrad loan) began repayment in August.
I have always utilized the standard repayment plan on my SallieMae loans. However, after calculations of my various student loans, I was going to pay over $650 a month on student loan payments each month… more than a third of my monthly income! I knew I could not afford those payments at the monthly income that I was making. I looked into consolidating my student loans, but was weary about the idea knowing that I wanted to go back for my PhD in a few years. If you consolidate your student loans, most of the time if you return to school, you are not granted deferment on your loans and must make monthly payments. A friend of mine suggested looking into the graduated loan repayment plan instead of consolidating my loans.
I decided to change my Nelnet loans from the standard repayment plan to the graduated repayment plan, converting my monthly payment of $300+ to $182 a month. With this change my total monthly student loan payments came about $350 a month. Making it much more affordable for someone who generally lives paycheck-to-paycheck.
In January, I began my annual review of my student loans. My private loan was paid off in January with the help of my father, resulting in $50 freeing up from my budget. At this time I also dumped my $100 Verizon cell phone bill for a monthly $12 plan (post coming soon about that!) freeing up addition money. When I began examining my Nelnet loans closely, I realized that a few of my loan balances were more than the original amount I had taken out due to interest. This did not make me happy. I succeeded to go back and edit my monthly budget to accommodate a higher student loan payment. The next day I called Nelnet to change my repayment plan from graduated back to standard. My monthly payments almost doubled from $182 to $291 a month.
This past month I had a small $368 loan from one of my summer courses that was really annoying me and so I paid that off. In an effort to pay my student loans off faster, I decided to change my monthly Nelnet payments to an even $300 a month. I will be paying an additional $13.75 a month. That amount is just cents compared to the total loan balance of over $23,000, but every little penny counts over the repayment period. As of March, I will be paying about $450 a month in student loan payments and I aim to pay at least an extra $100 a month to pay them off faster as well. I will talk more about my plan of attack to pay my loans off in less than 10 years in my next post.
I mentioned a couple of loan repayment plans above, but let’s take a closer look at the various options for federal student loans:
- Standard Repayment Plan – A fixed monthly payment of at least $50 a month for 10 years. You will pay the least amount of interest on this plan compared to other plans.
- Graduated Repayment Plan – Monthly payments are lower at first and generally increase every 2 years for the term of the loan – usually 10 years. You’ll pay a bit more interest on this repayment plan than the standard plan.
- Extended Repayment Plan – Monthly payments are either fixed or graduated for a loan term of 25 years. You must have at least a certain amount of student loan debt to qualify for this repayment plans and will pay significantly more in interest than any 10-year repayment plan.
- Income-Based Repayment Plans (IBR) – The maximum monthly payment will only be about 15% of your discretionary income and your monthly payments will increase as your income increases over 25 years. You must qualify for this repayment plan.
- Pay As You Earn Repayment Plan – The maximum monthly payment will only be about 10% of your discretionary income and your monthly payments will increase as your income increases over 20 years. You must qualify for this repayment plan.
- Income-Contingent Repayment Plan – The maximum monthly payment is based on your income. Each year payments are determined based on your adjusted gross income, your family size, and your total loan debt. Your payments change as your income changes for up to 25 years.
- Income-Sensitive Repayment Plan – Your monthly payments are based on your annual income and will change as your income changes. The loan term is 10 years and you will pay more interest than the standard plan.
As you can see, if you can afford it, utilize the standard repayment plan because you will pay the least amount of interest. However, if you just graduated and got a low paying job and really can’t afford to pay your student loans, contact your lender about options. Always, pay your student loans each month, even if it is just a little bit of money. In the long run, you will be thankful that you did.
In my next post I will discuss my plan to pay off half my student loan debt by 2017!
For more information on student loan repayment plans check out: http://studentaid.ed.gov/repay-loans/understand/plans.
In case you missed my first post of the series… check out The True Costs of College: My Student Loan Debt Story – the beginning of my journey to pay off nearly $45,000!