Thought #5: 3 Ways to Manage Student Loan Debt

Since “Harlem” by Langston Hughes recently found its way back into my life, I have been thinking a lot about the idea of a dream deferred in the context of my situation with student loan debt.

Hughes starts the poem with two poignant questions, “What happens to a dream deferred? Does it dry up like a raisin in the sun?”

Exiting high school, my dream was pretty simple: a career that garnered the respect of my family and peers and financial freedom. Every adult in my life at the time insisted that a college degree would place me on the fast-track to my ideal life and pay for itself. Obviously, I borrowed the money I needed and enrolled in the highest ranked university that was willing to take me.

As soon as I signed that initial promissory note, I was locked in the cycle of borrowing just to defer repayment – it was actually avoiding repayment that motivated me to continue directly on to Grad School because entry-level positions barely paid enough to cover the cost of living in the Bay Area, yet alone my student loan payments.

All these years later, I still believe that my degree was a smart investment; however, at the age of 18 years old, I had no clue how much borrowing would actually cost me later on down the line in terms of opportunity and quality of life. Lately, all I can do is worry about what’s going to happen to my dream as the reality sinks in more everyday that it could take me the rest of my young adult life settle my debt and finally start to live the life I dreamed of as a kid.

For Thought #5,  I want to share 3 debt management strategies that will hopefully help you to better manage your student loan debt so it doesn’t spiral out of control and threaten to defer your dream.

#1. Manage the Cost

A mistake that I made early on was that I didn’t put a price on my education. Obtaining a degree by any means necessary was my mindset, so I borrowed – perhaps even a little more liberally than I should have. I could have benefited from a budget.

As a college adviser in high schools, I would ask students if they had a budget for their education once the financial aid packages started to roll in. While a few students were financially conscious, an overwhelming majority of students were clueless like me at that age. This simple question, however, sparked some really productive conversations about expectations for life after college.

I believe that a lot of people invest in college expecting increased future career earnings; however, I wonder how many people actually consider how much it will cost to live and repay a loan after graduating. Free online tools like Nerd Wallet’s Student Loan Calculator or Career Zone’s Make Money Choices are great resources to estimate the cost of a loan and your desired lifestyle – the hope is that realistic statistics will empower you to make more informed decisions about borrowing.

More than paying to attend a name brand college, grit and resourcefulness (e.g. applying for scholarships to offset the amount borrowed) are the characteristics that are going to help you rise to the top. Carefully consider your options and your goals before taking out a loan.

#2. Get Informed

Taking out small loans each semester over the course of four or more years really adds up, so much so that I was shocked when I finally got informed about how much I owed. My debt grew beyond control because I wasn’t keeping good track of how much money I was borrowing – all I knew for sure was that I wouldn’t have to deal with my debt until six months after graduation.

In hindsight (see previous Thought, “Is Hindsight 20/20?“), I didn’t really want to know exactly how much I owed – my debt scared me. By not keeping a closer eye on the amount of debt that I was accruing, I ended up hurting my financial health in the long run. Had I monitored how my debt was growing over time, I like to believe that I would have made some different decisions.

Even though they heavily market credit cards and other credit-based products, Credit Karma  is a credit tracking tool that I could have benefited a lot from early. Credit Karma generates your credit score and report information for free, allowing you to keep track of what’s going on with your credit at all times.

When it comes to managing your student loan debt, knowledge is power. If you work with someone to develop a budget and monitor your debt, you will be empowered to control your borrowing so that it never has an opportunity to get out of hand.

#3. Pay the Interest

The whole time I have been accumulating astronomical amounts of debt, I have also been working; however, I didn’t contribute any of my income to managing of my debt.

I spent all my income trying to “Keep up with the Joneses” – I took advantage of the deferment on my student loans to buy a lifestyle that I actually couldn’t afford, which I am paying for today in the form of tens of thousands of dollars in compound interest.

The thing about unpaid interest is that it gets added to the principle (i.e. the original loan amount). Basically, you end up paying interest on any unpaid interest you accrue. This means that your principle can look dramatically different by the time you graduate if you aren’t proactive about keeping the cost down.

Instead of eating out, purchasing new clothes and the latest gadget, or attending popular concerts and sporting events, pay the interest on your student loans if you can afford to. Besides, interest payments are tax deductible, which means a larger return come tax season.

Borrowing to pay for college isn’t a bad – just be smart. Crunch the numbers and proactively manage your debt so paying it off doesn’t impede on your quality of life and/or threaten to defer your dream.

Enjoy this “Thought”? Be sure to like and leave me a comment. I’d love to hear your thoughts. Also, please subscribe to this blog on my website and get automatically notified of new posts.

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Author: Kyle Hill

Thoughts is the official blog of Critical Thinkers Consulting. Topics span school, work, and all other phenomena relating to the transition to adulthood.

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