How To Stop Student Loans From Ruining Everything
Your Guide To Student Loan Debt
The average college graduate leaves with
almost $30,000 $35,000 USD in debt. That is not including an estimated $6,000-$12,000 in credit card debt with a crushing 13%-30% interest rate that comes along with it! Student Loans can be tricky, do you invest that left over money from your the saving % of The Percentage Rule or pay off your student loans quicker? We are here to help!
Student loans are a bet on yourself that by gaining a degree you will be able to make more money than without it. Smart people always bet on themselves and they budget to minimize college costs. They know that they are their greatest asset for success. They also know that with continued learning they will jump ahead of their peers, and have a continued advantage throughout their lives. Learning didn’t start with school and it continues long after formal education.
Subsidized And Unsubsidized
When you take out a loan there are two different types subsidized and unsubsidized. The first is the BEST type of loan, the government pays the accruing interest while you are in school. The second, unsubsidized, and you guessed it, interest starts building immediately with no government help. This can add up to thousands and thousands of dollars in just interest, especially if you decide to go for a masters or a doctorate. Masters and PhD programs also have higher interest rates so figure that into your costs as well!
Now that we have the basics covered lets talk about rates. Interest rates are at an all time low. That doesn’t mean you should be making the minimum payment on your loans! Top Millennial rule, if your loan interest rates are over 5% you should be paying it down with extra funds. The average combined interest rate for student loans is 4.66%. It won’t do any good to put money into investments getting under 5% returns. The 20-40% of your monthly money that otherwise would be going to investing is now required to be put towards principal on your loans. Your investments are unlikely to make
6%+ returns in the current market, the market is changing for the better quickly so it may be smarter to invest the extra savings towards retirement.Paying down these higher interest rates are a smarter option for your money.
Any loans in the 3-4% should be paid using the recommended smallest monthly payment. With inflation taken out of these rates you’re paying a very negligible amount of interest. You’ll end up paying roughly 1.5-2%, depending on what sources you use for inflation that is Uncle Sam giving you a great deal. Go you for attending college at the perfect time to borrow money almost for free, but don’t forget to budget while in school!
We also want to note that you should pay on a 10 year repayment program. 15 or 30 year repayment programs may seem like a good idea due to the small payments, but I know that when you’re 53 just paying off your student loans you would have wished you did it sooner. Not to mention all that extra interest you ended up paying tripled your total paid amount. 10 year solutions are the absolute minimum you should do. If you can pay them off quicker all the better. Getting to a positive net worth as quickly as possible is a KEY indicator of those who end up retiring millionaires versus the average retiring with 100k.
Student Loans Are Not Kidding Around
Paying your loans back is not a joke, they are backed by the federal government and only in EXTREME cases can they be forgiven. It is crucial that you pay them, otherwise when you decide to get a home or car your interest rates will be very high. You may not even be able to qualify!
With new regulations put in place by the Dept. Of Treasury, things just got trickier so check out my new article on what changes have happened!
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