Student loans are like the opposite sides of the same coin. The growing student loan debt held by young people has been a major topic in recent news. On one hand, it’s a great equalizer because it helps to provide access to post secondary education for individuals who may not be able to afford it otherwise. Having student loans also gives you access to bursaries and scholarships not available to the general student body. But on the other hand, student loans can easily trap a young person in debt for years without end. When you’re 18 and filling out the student loan application, it isn’t always clear what the end result is. At 18, you usually don’t even know what you’re going to major in, much less how you’re going to pay off a loan the size of a down payment on a home.
Caption/Title: Photo of Euro coins and notes Photo Credit: Danish Wikipedia (http://da.wikipedia.org/wiki/Forside), User (http://da.wikipedia.org/wiki/Bruger:Twid)
In my first degree, I took out student loans for 3.5 years out of a 4.5 year program. I racked up over $40,000 in loans from two different sources. Several thousand dollars was automatically forgiven thanks to maintaining my grade average and several more were converted into grants. But even so, by the end of my program, I was left was just under $35,000 in loans. Payable over the next ten years, my monthly payments were about $450. That’s half my rent, 4x my grocery budget and more than I spend on clothes in an entire year. However, I was fortunate to be employed straight out of school in a job with an annual salary greater than my total loan. So here’s tip #1:
Tip 1: Carefully consider your future self
If you’re going to take out a loan, make sure you’re employable. Grades are important, but it’s not the only factor. You should take care to research growing career fields and expected salaries and figuring out which of your interests match up with those careers. You could try getting internships and work experience throughout school. Not only would you make some money, but you would have a better idea of what career opportunities are available. Most likely, you will have to do all of those things and more.
In addition to getting a decent job, it was around this time that I started getting smart about my money. Things like saving and budgeting finally began to click with me. During the course of my financial clean-up, I realized that I qualified for interest relief on one of my two loans. That’s where we get to tip #2:
Tip 2: Take advantage of opportunities to save
Chances are you qualify for some sort of assistance in terms of interest relief, modified payments or even partial loan forgiveness. Investigate and pursue these opportunities! They will NOT be advertised to you.
After I qualified for interest relief, I did not have to make payments on my loans for 6 months at a time. Once those 6 months were over, I could reapply for interest relief. But I didn’t just let my loans sit idle. After all, I had been making payments without too much hardship.
Tip 3: Avoid interest charges
Even if you qualify for some sort of interest relief, don’t just let your loans sit there! Continue making the maximum payments that you are able to make. These payments will go directly towards your loan principle, thus reducing the amount of interest you have to pay over time. And even if you don’t qualify for interest relief, make extra payments if you are able. Every little bit helps.
For me, this mean taking out 3 consecutive periods of interest relief while continuing to make my regular payments. Unfortunately, I did not qualify for interest relief on the smaller loan. Even so, this brought my total student loan debt down to about $28,000. At this point, I went back to school for 2 years and my minuscule budget did not allow me to make extra payments on my loans. However, that leads me into the most important tip of all.
Tip 4: Do not take out loans (unless you absolutely, truly need them)
I should not have taken out loans during my first degree. It didn’t matter that it paid for my education. It also paid for beer, parties and over-priced housing. I cannot stress this enough. You will be better rewarded by simply working a minimum wage job for a year, living at home, and saving up money. Don’t want to live at home? Then you can achieve almost the same thing by working part-time during classes, sharing a place with roommates, and leaving cheaply. In fact, that’s what I did during my second degree! I saved up a few thousand dollars, trimmed down my budget, then went back to school. During school, I shared my apartment, worked several part-time jobs, and took advantage of bursaries and job benefits to pay for my needs. As a result, I did not need to take out any loans for my second degree.
Which brings us to the present!
I started my new job earlier this month which means its time to tackle the student loan again. I have budgeted $350 a month towards paying off my loans but of course, I want to take every opportunity that I can to reduce my balance! This is especially important during the first 6 months out of school (at least in Canada) because you do not have to make payments yet. I’ve decided to throw all of my extra “leftover” money towards my loans. For me, that means: the money I earn from mystery shopping, unused money budgeted for things like my cell phone, and spending money that I don’t end up spending. For others, it might mean the tip money that you get after a shift, the money you save after using a coupon, or the extra cash you get from babysitting the neighbour’s kid.
My current balance is $28,638.85. On this balance, I rack up $4.30 in interest charges per day. Per day! And my loan is not astronomical by any means. Many people have much higher student loan balances. Imagine how much interest you lose on a $35,000 loan… a $45,000 loan… How much of your life are you giving up to interest charges? It terrifies me to think of it.
School is a great thing. An education is valuable and certainly necessary for many careers and jobs. But if I had to do it again, I’d tell my younger self that working a few years before college is better than paying off a debt for ten years. I’d tell her that it’s better to do something you like and have money to do what you love, than to do something you love and find that no one will pay you (well) to do it. I’d tell her to suck it up and share an apartment, live in the east side, and make a freaking budget.
If you’re in the same situation, it’s never too late! Taking control of your student loan situation will pay off exponentially in the years to come.
