Student Loan Repayment Plan: Dumping Sallie For Good

It was 2012, and I was a bright eyed college Freshman looking to transfer to a school far away from home - but still within the same state, I mean let's be reasonable here. Hmm, Freshman are required to dorm? OK, what's the harm in that? I'll get the full experience of what it's like to be a college student. Well, since I didn't have that kind of cash, I might as well take out a private student loan on top of my Federal Aid, what could go wrong?

... A lot can go wrong when you're just a kid with no real understanding of Variable Interest, Fixed Interest, Compound Interest. I mean, sure, I took a business class in High School; I knew what these things were, but did I really understand the implication of an $8,500 variable interest loan compounded many times over the course of the ~7 years that it took me to pay it back? No...

I set my sights on the seductive Sallie. Sallie was gracious enough to set my loan up at around 5% for the $8,500. Sweet! That's less than my un-subsidized Federal Aid (6.5%). Well, Sallie must have loved me. Fast forward 3.5 years and I'm out of school, it's 2015, and Sallie asks me for about $10k back from the whole deal. Wait a minute... Sallie slowly raised my rate up to around 8.5% and laughed all the way to the, well, her: the Bank.  Well, so-long, Sallie. Good riddance. Sallie got me for two loans, but I'm done with her now and nothing is sweeter than freeing up your own income.

Sallie took the break up surprisingly well...

I want this post to help you hit the ground running. I'll do my absolute best to help you build the framework through what I did, pulling from the root of why this blog exists. When I got out of school, I was fortunate enough to find a job - a crappy one, but it paid some bills.


How can I get ahead of my Student Loans? Here's the lesson plan:

1. Understand the scope of the debt you are in.
2. Get a source of income as soon as possible.
3. Set your repayment plan.
4. Reap the benefits of Mental Momentum.

1. What are we dealing with here?

Depending on your situation, there may be different pathways that you can and should go down. Did you graduate with a degree that will let you work for a Public School, a Hospital, or a qualifying government agency? There are repayment programs that might qualify your Federal debt to be forgiven, partially.

When I graduated I was terrified to log into the 4 different lenders that I had for my Student Loans, but I needed to get a hold of the situation so that I could keep an Excel Spreadsheet to track my payments. I created a Credit Karma profile because it helped me to see the total amount of my debt, the number of accounts that I have open, and my Credit Score - this will be important for nearly every aspect of adult living.

So, that's where I am today. Total balance on all debt, including Credit Cards, is $22,066. I've been aggressively tackling my debt for the past year or so. It gets easier and the light at the end of the tunnel is getting brighter and brighter. About two years ago, that number was about $40k. I found ways to force allocations towards my student loans, all the way up to $1,000/month for parts of the year.

2. OK - easier said than done, right?

I found it hard to get a professional job with just a stand alone Bachelor's of Science in Business Administration without any Internships under my belt - my resume just didn't stand out at all, there was nothing there. Sure, I managed a School Club-Sports Team in my downtime, but no company is going to look at that and say, "Hey! I found the guy!" 

I got my first job out of college by going through a Staffing Agency. At the time, I was working in NYC, so there were PLENTY of agencies and LOADS of opportunities. I ended up going through a Contract Recruiter who hooked me up as a Contract Recruiter, hiring Contractors for other companies. Weird, right? Essentially, I was a Sourcer - I would find people to work contracts. I hated that job, it was miserable. But I did learn a lot and it built into the fantastic role that I have now as a Recruiter. 

The main point is that you need to get a source of income going before you can even touch those loans. It doesn't matter where you work, as long as you can cover the basics: Rent/Mortgage, Food, Utilities, and throwing whatever is left at your debt. Refer back to my other post, Enter the Side Hustle, for a couple of ideas to get you started. I have a link for a Swagbucks referral in that post that will get you about $5 in online gift cards of your choosing.

I'm a Recruiter now, by profession, and have always wanted to have a medium to share career advice. I plan to do so through this blog, just in a later post. For now, let's get back to Sallie.

3. DO go chasing Waterfalls!

That's right, I'm sure that you've heard of the Waterfall Method.  With our leftover income that we might otherwise spend on entertainment or eating out, we can redirect that to our student loans or credit cards so we can get them out of the way.  If you can swing it, some lenders will offer an interest rate reduction of 0.25% if you choose to auto-deduct the student loan payment. This can be an effective tool, which might save you a couple thousand dollars over the long term.

The method I personally used was: Break down and cry, make the minimum payments for a while, realize that I'm never going to get rid of the debt, panic, then research the best strategy. I'm hoping that I caught you before that, but if you're where I was, don't panic anymore. Waterfall for the win.

Waterfall Method: 

You are going to overpay the loan with the LOWEST current balance and HIGHEST current interest. Once you kill that loan off, move on to the next one that fits the same criteria. You take the money that you were paying the first loan with and apply that to the second, along with the payment you were already making on the second. 

Let's take a look: We can say that Loan D is a Federal Loan, as is Loan B. Loan A and Loan C are both private, variable interest. Let's also say that you were wise enough to place the Federal Loan on Income Based Repayment and your income is so low that you're locked in at a $0 payment for about a year.

Loan A: $6,236 @ 5.5%

Loan B: $15,603 @ 3.5%

Loan C: $3,450 @ 8.5%

Loan D: $18.670 @ 6.5%

Payments:
Loans B and D: $0, or income based repayment minimum, should still be low - yes, they will accrue interest but Federal Loans are more easily forgiven than Private.

Loan A: Monthly minimum of $100.00

Loan C: Monthly minimum of $60.00 + $240.00 extra = $300/mo

If we can commit $400/mo total, Loan C will be out of the window in under one year. Once it's gone, we're going to take that same $400 and apply it to Loan A until it's gone. Once A is gone, we move on to the two Federals.

The Waterfall Method can be applied to all debt, as long as you weigh it properly. Make sure that the one you focus on is impactful. 

4. Most importantly, pat yourself on the back!

As soon as I finished off $10k worth of repayment to Sallie, I posted on Instagram to celebrate! It turned out that a lot of people I knew could relate. You need to think about it like you're buying back equity in yourself. When you took that loan, Sallie put you to work in hopes of getting a return on investment. Well, you should be leveraging her money to get your own return on investment. Buy that equity back.

Depending on your debt and where it is, paying it off will increase your credit score. If you have a high utilization rate on your credit cards, meaning that you're nearing the credit limit, that will hurt your score. Another added benefit of paying down your student loans is in the form of a Federal Tax write off of just over $2k. That's right, you can reduce your tax liability by aggressively paying down your student loans. It does have a cap, but going beyond that just means extra savings in the interest saved.

Now that I have paid down the majority of my debt, I have been able to free up some of that income to aggressively start saving so I can put my money to work with investments and just living a little.

Well, that's it for now. Check back in next week. I'm planning to expand on this a bit and break down my personal budget and how my quality of life was UPGRADED by paying down my debt and living within my means!

-Scott