When I graduated from college with an economics degree in 2009, I was much like any other college graduate. I had high hopes for the future, and plenty to look forward to. Unfortunately, a black cloud of student loan debt was always threatening to ruin the very real plans I had for my future and career.
With $100,000 in private and federal student loans hanging over my head, I felt the pressure in every direction. There was pressure to find a job and keep it, and even more pressure to make my loans disappear through any means necessary.
I also felt pressure to mend the broken relationship I had with my parents, which had been fractured and bent to the point of no return. Since my parents had been generous enough to co-sign my loans, they were feeling just as much financial pressure as I was. So, when I defaulted on my loans, their credit took a nosedive, right along with mine.
It was all equally unfair and disheartening, but I ultimately took action instead of wallowing in despair. To share the lessons I've learned about student loan debt, I created Student Loan Hero. It's a resource that helps other students keep track of their loans and learn ways to minimize them.
Still, dealing with student loans after the fact isn’t all we can do. The fact is, there are so many things I wish I'd known before I took out $100,000 in student loans. My hope is that, by sharing these lessons, I can help others avoid a similar fate. Here are five things I wish I had known earlier about paying back student loan debt:
1. Debt is a burden.
When I borrowed the original $74,000 in funding to earn my economics degree, I had no idea what owing that much money would mean. I had no idea what my monthly payment would be, how that payment would fit in with my lifestyle or how long I would need to make payments to become debt-free.
I didn’t know that owing that much money might prevent me from buying a home, or that it could eat up a considerable percentage of my income for so long, it might force me to delay retirement, forgo travel and put off any other goals I might have.
I have since learned that debt of any kind is an enormous burden, and it shouldn’t be taken lightly. After all, for $74,000 in debt, a standard repayment plan will cost $821 for the next 10 years of your life, at 6 percent. For many college graduates, that’s a house payment on a starter home, or more than enough cash to fund any number of other goals.
2. Six-figure student loan debt can take decades to pay off.
When you’re still in school and not yet out in the workforce, it can be difficult to understand how long student loan repayment will take, or what it could mean for your life years (or even decades) from now. There are several income-driven repayment and loan forgiveness programs out there, and each offers benefits that can take the sting out of your monthly payments.
However, some of these programs still require you to make payments for the next 25 years of your life. A 25-year-old who has signed up for income-based repayment after July 1, 2014, for example, would pay 15 percent of his or her discretionary income until his or her last payment at age 50.
That’s a ridiculous amount of time spent paying off student loans and finally becoming debt-free. But it’s exactly what you’ll endure if you borrow an amount that causes you to go down this route.
3. There are plenty of ways to cut down on the expense of earning a degree, but you have to be flexible.
When I earned my four-year degree, I was convinced that a private college in Boston was the only school that could offer the experience I wanted. The price tag? A cool $40,000 per year.
Looking back, I now realize that a number of local schools could have provided the same educational standards for a lot less money. Even worse, some of those "good enough" schools even offered me scholarships to attend them.
Whatever your situation may be, it’s important to understand that the place where you earned your degree matters less with each passing year. That’s why setting your heart on an expensive school is one of the worst things you can do for your financial future.
Instead of going out on a limb for a school you’re passionate about attending, look at schools that are more within the realm of what you can afford to pay. If you want to take it a step further, you can also consider community college for the first two years. This way, you'll save even more.
At the end of the day, where you went to college won’t matter much: It will only matter what you did. The main difference you’ll see is in the amount of money you had to borrow, and what you now have to pay back.
4. Starting salaries are not a sure thing.
Throughout college, I was told, time and time again, that I could expect to earn $80,000 if I entered a typical business career after graduation. Sadly, that couldn’t have been further from the truth. Once school ended in 2009, the economy had tanked. As a result, I took a job that paid about half of that.
All of a sudden, the looming student loan debt I faced seemed much, much scarier. How could I pay these loans off when I earned so little? I truly couldn’t keep up with my student loans, and that’s why they went into default in the first place.
Research salaries in your area with the Bureau of Labor Statistics, or on sites like Payscale.com. Never, ever take anyone else’s word for it. The difference between what you think you’ll make and what you'll really make could be huge.
5. Government programs that are meant to help can actually cost you.
When student loan debt spirals out of control, a lot of people suggest government protections, such as deferment and forbearance. What they don’t tell you, however, is that those options have their own set of consequences, and they can cost you way more money than you realize.
I already mentioned that I ended up with more than $100,000 in student loan debt, but that my original loans were for around $74,000. The surge in the original loan amounts took place when I chose to defer my loans in order to not repay them right away.
This decision proved extremely costly -- to the tune of $26,000 -- and even more when you count the extra interest I’ll pay in the years to come. The underlying lesson is this: You should read the fine print before you sign up for any type of program that is meant to help you, and you need to understand what the “help” you’re signing up for really means.
If I had known my loans would balloon in the way that they did, I would have done anything I could to begin making minimum payments right away. The consequences of not doing so have been disastrous for my both finances and my debt repayment journey. Don’t walk blindly into the same mistake.
With student loan debt topping $1.3 trillion nationally, we need to focus on both sides of the problem. We need to figure out how to help students avoid crippling student loan debt in the first place, as well as give them better ways to deal with the debt once it’s already too late.
At the end of the day, the former strategy will always be the best option. No matter what, the best way to deal with student loan debt is to avoid it altogether. Minimize your exposure as much as you can.
Remember: An ounce of prevention is worth a pound of cure. When it comes to student loans, the “cures” can be just as bad (or worse) than the thing that hurt you in the first place.