Ask Paco: “I’m Drowning in Student Loans.”

I would love a post about how to save in your early 20s. There are just so many categories of things to save for, but not a lot of money to put into savings. Between saving for retirement, grad school, an emergency fund, and money for moving to a new city, I’m confused about how to break those categories down. I’ve been told to just put as much as I can into a roth IRA and not differentiate yet between retirement and grad school, but does it make sense to take money for school out of an IRA when it could grow so much more? And is it a bad idea to just keep money for a 2-3 year goal (like moving) in a normal savings account versus a CD or IRA where it could grow? Thank you!

Hahahahahahha I literally did number 5. Left the US with absolutely no plans to ever go back with the state of the economy. After living various places overseas I have fully seen the advantage to a socialist economy. Just made me LOL to see it on the list.

I had to really get down in the weeds. Cut cut cut everything. No restaurants, no shopping, no vacations. No new clothing or shoes. My purse was falling apart and I was embarrassed to bring it to work. I didn’t even shop at a thrift store. I lived with roommates and paid much much more toward loans than rent. Work work work so much that it’s easy to save money because I had no time. It cost me more than just time. Time away from friends and family hurts. But then after 2 years of living this way… freedom. And that was worth it. Keep your chin up. It’s only for a while.

Poor American students!! I’m sure no one in Europe would get higher education if the costs of studying would be so high. I also can not understand which kid (at 18) is so responsible to take out loans for his unpredictable future??

Love that “pay what you can and hope for the best” is included as a valid option!!! I did this with my undergrad loans before going back to law school, and it’s what I’ll be doing with my law school debt too. I will not be having children, and owning a house or car are not goals I have. The future is uncertain for everyone my age with regard to retirement. I consider a monthly loan payment to just be a fee for having the education and career I want. I might never pay it off and that’s ok too. It isn’t necessarily “bad” in every circumstance to have debt – it’s just reality, and you can make it work and live a happy, full life depending on your circumstances.

My husband has struggled with super high interest rates since he graduated, i’m talking 10%+ which is terrible. We found that with new services like Sofi or Earnest he could apply to refinance them and combine them into one. He applied for YEARS, i told him to not give up and continue to apply to different places at different times and out of the blue one day Earnest gave him an amazing rate of 4%!! It is a very stressful and depressing situation with these loans and just having a lower interest so he can finally tackle more of the actual loan was such a relief. My biggest advice is work on your credit being nearly perfect and apply for refinancing the rates. Don’t give up!!!

245 comments and I don’t know if this has been mentioned but…

The company I work for really heard employees when they were saying “Thanks for that IRA but I can’t even think about retirement with this massive heap of student debt.” So, in addition to the IRA, one of our company sponsored benefits is $200 a month toward student loan repayment through Gradifi (gradifi.com). I setup Gradifi for us and a key part of us implementing it was all of us saying “this is what I really need”.
Our company does a lot of work in the workforce development world and I’d encourage employers to think about offering your employees benefits that matter and resonate with them and will ultimately help you retain great talent. I might be able to make more money on the open market but I work at a place that really cares about what I need to be happy and is helping me make progress toward my financial goals.

Amanda, not all private lenders are bad. My federal loans were ruining my wellbeing and financial life at over 100k with no family help. There are mold-busting companies like Earnest out there that have created MUCH SMARTER scenarios as options for us, mostly because federal loan interest rates can be so high. Yes, these companies do require solid income and credit scores. But I absolutely encourage everyone on this post reading about the perks of federal loans vs private to look into more creative options. What a relief it was for me to no longer feel the anger I used to experience from my federal monthly payment, after refinancing. Now my loan is disappearing instead of ballooning, and because I see progress, I feel relief instead of helplessness.

One way to avoid student loan debt (especially in grad school) is to get a full-time job at the school you want to go to before starting classes. I know quite a few people who did this and it while it took them longer to get through grad school they did so and paid little or no money at all. I actually worked at the university my husband went to for his Master’s (I’m a librarian) and it was totally free for him. I just had to pay taxes on the tuition I earned for him like it was my income. Parents can do the same thing for their children. There are so many jobs in academia, so don’t think you need to be a professor! You can work in security, maintenance, finance, advising, facilities, IT, the list goes on, all at a college or university.

Let’s see — I’m 32 and still owe about $50K in student loans. I’ve been paying them off for 10 years. I just took over a student PLUS loan my parents have been paying for 14 years. The original loan amount was $30K. They (now I) still owe $15K. After 14 years.

Our system is broken. We should not punish young people and saddle them with this much debt.

If you can find it, a job where you travel made all the difference for me – I got very lucky and ended up with a job where I traveled internationally, but domestically is great too. There are lots of companies that want young professionals to travel for them, and opportunity is there for new job seekers since those 10 years into their career often try to travel less (family!).

Sure, being on the road 40% of the time can be tough, but the combination of per diems, hotel points, credit card cash back (find a card with high cash back for travel) and airline miles (paid for my trips home to MT to see my family!) really made things go much faster and allowed me to still do some leisure travel. But those per diems were the kicker – I would bring my own food for the most part (which, I had to work a ton and didn’t usually have time to go out anyway) and thus pocket the money I received each day. When my reimbursements came through, I paid off my credit card from the trip (again, credit card cash back!) and then automatically dumped the rest of it onto my loans.

The other thing non-work-travel-related (bc not everyone can travel for work, I know!) was that I figured out a minimum balance I was comfortable with in my checking account. Each month on the same date, right after paying off my credit card bills, whatever I had left above my minimum went straight to the loans – thus some months I could put an extra $12 to my loans, other months an extra $500. This method helped me because of how great it felt to see how much extra I was putting on my loans each month – a sort of gloomy game that made putting ALL your money into loans a little more motivating!

One option is to move! My husband and I both work in construction. He took we took an assignment in rural Wyoming for two years. We were able to pay off our debt by living a low cost area that also compensated well because it was hard to get people to move there and work the 80 hour weeks. Overall it wasn’t the best two years but we enjoyed the simpler life and were able to transition to city living debt free – our rent for a studio apartment now is twice what we paid for a 3 bedroom house. So for any newer grads, look at the midwest – it’s a fun way to see a new part of the country and save money!

I really appreciate this column! The line about “mortgaging your future” is so true. It’s tricky because student loans are really diverse – my husband has a variety of loans from different servicers, some federal, some private – so what makes sense for some types (refinancing) doesn’t for other types.

We initially signed up for income-based repayment for his federal loans because it sounds like such a good deal, but after taking a closer look, I realized we weren’t even paying the full amount of monthly interest, meaning the loans were ballooning. By only paying about $150 more per month, we switched back to the default ten-year plan and so will pay them back.

We’re taking the “pay what you can and hope for the best” approach, and it’s working pretty well. We live below our means, have built up a robust emergency fund, and each month, in addition to making the minimum payments, I put any extra money toward the loan with the highest interest rate. Different loans with the same servicer can have extremely different interest rates, and sometimes it’s tough to figure out how to apply an extra payment just to an individual loan, but it’s worth it to pay off those high interest rate ones first!

It’s so tough to find that balance between still letting ourselves spend money to do the things we love versus throwing all of our discretionary income at the loans. The biggest impact its had is preventing us from buying a house – we live in a pretty affordable real estate market and literally all of our friends own homes but we’ve done the math and renting a cheap apartment makes the most sense for us.

what about enrolling in public service student loan forgiveness programs?

I recently paid off $80K in five years. In that time I lived in rather expensive cities (Chicago and Boston). Besides the snowball plan, I put almost all discretionary income to my loans. You have to reframe what you think of as discretionary income. Besides tax refunds, bonuses, birthday gifts (checking my privilege here) etc. I got creative with my spending habits. If I ordered something online, then ended up returning it, I would put the credit back into my loans. (If I could afford the cost of that shirt, I could definitely afford that much to my loans). I love to donate gently used clothes, but I started consigning instead and using that money toward loans. Most large companies offer incentives through health plans nowadays (ie get a physical, get $$ of your premium). I took those lump sums and put them toward my loan payments. My aggressive plan wouldn’t have been possible without having a well-paying job, but these small tricks helped shorten the payment cycle!

I graduated college with zero loans because I was fortunate enough to have parents who started saving when I was born. We are currently doing the same for our kids.

My second job out of college was for the federal government and at that time (2003) they had had a little-known loan-repayment program. They matched my payments 1:1 up to a set annual amount. It was a TON of paperwork and I had to be on top of the HR department to get my money, but it made an enormous difference. They paid lump sums quarterly so I also had to be sure loan companies applied the amount toward principal (as in write a formal letter, make phone calls, etc bc they did it wrong every single time) but I was able to pay off a significant amount of debt, and getting that lump sum down meant the last bits of my loans were paid off more quickly. I was also very motivated to continue big payments even when my employer program ended. So my message here: 1 maybe your company will help in some way, even if it’s a few hundred dollars it is worth the paperwork 2 it is imperative to apply any extra payments toward principal. I am incredibly grateful to my 25 yo self that I prioritized getting rid of that debt.

I paid off 35k (car + student loan) in about 2 years by doing the following:
Dave Ramsey!! As other’s have said, not into his personal politics but loved the snowball method. I found it incredibly motivating.

— Each year there’s typically 2 months that have a 3rd paycheck. I always put my third paycheck directly to my student loan principle. It was truly painless and usually made a dent in the loans.

— Put any raises and my tax refund directly toward my student loans principle

— Worked extra. Like, seriously extra. I worked all the time. Maybe not for everyone but I was motivated!

It’s really sad that college in America puts students in so much debt that they are tied to jobs they may hate just to pay it off.
In Australia, we aren’t charged interest, the total debt is just indexed each year to reflect CPI changes.
We also don’t have to start paying it off until we reach an earning threshold which is currently $55,874, then it comes directly out of our pay so I don’t even see the payments. There’s literally no reason for us to work our butts off to pay it off earlier except a little extra cash. This means we have more freedom to move around and travel!
There was also a loophole for years that (unfortunately) has now been stopped which was if you lived outside of Australia for more than 7 years your whole debt was wiped! Ha!

Could you explain why we shouldn’t “hang our hat” on the whole debt forgiveness thing?

One of the greatest gifts my parents gave me was forcing me to attend a state school. When I was 18 they showed me the difference in cost between a state school and out of state and it became an EASY decision. My degree might not have a flashy name on it but I always had a very reasonable payment. (It’s been paid off for a few years despite consistently working in very low wage fields.) I will never understand why more parents don’t have this conversation with their kids.

We’ve applied the same idea to our mortgage. We realized the benefits of staying put in our starter house so we also have a starter sized mortgage.

There are also programs in different careers that pay off your student debt for you. My friend worked as a teacher in a low income neighborhood for three years and her student loans were forgiven- and they were private school $$$!