Why I Decided to Finally Ditch My Student Loan Debt in 2020

    
        
        

          Every year I give myself a financial goal. Pay something off, save a certain amount, contribute more to retirement, or whatever I think is the most urgent or necessary action at the time to help my financial future. This year was no different although it took until about February to make a definitive decision on what that financial goal would be.


        Waking-up on January 1, 2020 I thought I had it all figured out. I was going to purchase my first home this year. I signed-up to attend free seminars for first-time home buyers and started reading everything I could to try to learn as much as I could about the process. I have to admit, I was intimidated by the entire prospect because I would be doing this all on my own; therefore I wanted to be prepared as much as possible. But with down payments, closing costs, HOA fees, knowing I would now be responsible for maintenance and upkeep and knowing I didn’t want to completely deplete my savings on this endeavor, I knew that maybe I needed some more time.




I decided it would probably be wise to rid myself of at least one of my other major debts to help free up more money in preparation for this next step. Full transparency, I currently have two major debts: my car loan (the balance stood at $21,777 on Jan. 1 with a 0% interest rate) and my graduate student loan ( the balance stood at $18,393 on Jan. 1 with a 6.8% interest rate).


I Still Tried to Push My Student Loan Debt to the Back Burner

        Looking at the numbers it seems pretty clear which debt I should tackle first, right? Well to the dismay of all the debt 'avalanchers' (this means tackling the debt with the highest interest rate first) and even debt 'snowballers' (this means tackling the debt with the lowest balance first) I opted to focus on the car loan. Why? Honestly, I think it was due to the mindset I had developed in regards to my graduate student loan debt. After years and years of paying on this debt and only seeing mere dollars chip away from the principal I had accepted that this would be a debt that I would have for a very long time, if not for the rest of my life. According to a CNBC article, the average American takes at approximately 18.5 years to pay-off student loan debt, starting at 26 and ending at around age 45.


Also, at the time the monthly payments for my car loan was higher than the monthly payment for my student loan so to me it made sense. And I’d be lying if I didn’t admit that there was also a small hope that maybe Elizabeth Warren would win the Democratic Primary and dare I say it, the Presidency, and maybe I could benefit from her plan to cancel student loan debt on her first day in office. This was mainly in jest, but a girl can dream right? 😆LOL


My Rude Awakening

            Then on January 31st, I received an email from the FedLoan Servicing stating they had just approved my Income Driven Repayment (IDR) Plan. After recalculating my monthly payment for the Revised Pay As You Earn (REPAYE) plan they determined I could pay $581 a month. According to the Federal Reserve, the average monthly student loan payment ranges  from $200 and $300. After a bout of disbelief (I had spoken with several reps beforehand that all inferred my payments most likely would be in the high $300s) and many expletives later, I decided I needed to be done with this debt. It was time for me to finally ditch my student loans. 


        According to a Motley Fool article, Americans owe more than $1.53 trillion in student loan debt, based on data from the Federal Reserve, and it’s not likely that number will decrease anytime soon. Student loan debt is the second biggest source of household debt, following mortgages; with about 44.7 million people carrying some student debt. I no longer wanted to be a part of this statistic.


     It was time to Make a Plan


Initially I was thinking rashly. I’d just wipe it out in one payment using my savings. Luckily, I talked myself out of this and decided I would come up with a more rational plan. I would still use a part of my savings in this endeavor but not a significant portion.  In my next post, I will lay out how I paid-off over $9,000 of my student loan in 6 months and how I plan to pay off the final $9,000 within the next 3 months. Why the next 3 months? Well, in response to the COVID-19 pandemic and in an effort to provide economic relief interest rates are temporarily set at 0% on federal student loans, and all federal student loans are currently placed in administrative forbearance (meaning you currently are not required to make payments). This 0% interest and suspension of payments will last from March 13, 2020, through Sept. 30, 2020, but you can still make payments if you choose. And I choose to do exactly that. An ambitious endeavor, I know, but I’m completely up for the challenge.


Student loans is another topic too vast to be covered in a few posts. Therefore, I will revisit this topic several times detailing the different aspects of student loan debt, how it affects people financially and emotionally, and ways to help alleviate this burden over the course of this blog.

Comments

  1. This was a really interesting post. Student loans are such a big topic and a huge burden on so many people, so congrats for making the decision to be done with them! Katie x

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  2. Student loans are the worst! I get charged 8% interest on mine which I think is ridiculous. Have seriously been thinking about doing the same as you, but just worried I then i wont have enough money to pay for my accommodation x

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    1. Completely understandable! I once was there too. If you currently aren't in a position to pay off your students loans that's okay. Other aspects of life may need your attention now. Just keep paying the minimum so you don't fall behind. And when you find yourself in a position to focus on paying down or off your student loan debt take it!

      Also, look into programs that may forgive or help pay off some of your loan for you. I'll be writing a post about this soon so be sure to check back!

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  3. WOW!!! That's amazing! I am currently enrolled in a loan forgiveness program. I will be forgiven of my loan by December 2021. If I could pay it off faster like you have done I would! I'm trying to be like you when I grow up!

    I couldn't even imagine having them tell me my monthly payment would be $581!! That's insane! I'm so happy that you are clearing your debt soon! I can't wait to be just like you when I grow up!

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    1. Britt thanks for the comment! If you're loan is going to be forgiven in a little over a year then I would not worry about paying it off early. Loan forgiveness saves you money! I wish I would have seriously considered it earlier but since I hadn't I feel like it's time to pay it off. Just make sure you keep making your payments and adhering to stipulations of the forgiveness program and in the next 18 months you'll be free!

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  4. This was a cool blog. I don't think I got that much out of it because I don't have student loans but for people who do they will get more from the info. I do always like how u break everything down and let us know how much everything is was and is going to be. And how you even had to have your ah ha moment and turn around and go a different way then you planned. So great post!

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    1. Thanks for the comment and feedback! I always appreciate hearing what people think! :-)

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  5. Student loans is a big debt and scary to approach, interesting way to go about getting it over with. Good luck dear 🍀

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    1. Thanks Risia! I'm almost at the end, roughly 6 more weeks to go.

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