Student loan debt is a heavy burden that most millennials are dealing with. Despite making enough money to live comfortably and paying the minimum on your loans, there is still that nagging debt about the size of a mortgage just shouting "I'm collecting interest for doing absolutely nothing!"
When I graduated from pharmacy school in May 2011, I had racked up a decent amount of debt. Despite getting financial aid for my 4 years at UCLA, the total of my undergrad education accumulated to $22,871 ($5,844 was a Perkins Loan and $17,027 was a loan through Sallie Mae). These two loans were in deferment while I went through another 3 years in pharmacy school and luckily they did not accrue interest at that time. My grad school loans were a completely different story. In August 2011, my grad school loans totaled $218,399 with $111,712 being a Stafford Loan (6.55%) and $106,687 being the Grad Plus Loan (7.65% interest). I'm more of a visual person so here's what it looked like.
It was a crazy amount to even fathom owing and it was only going to increase day-by-day since interest starts accruing 6 months after you graduate. I was lucky enough to find a job in June 2011 so that I could make some money as a grad intern while I studied for the boards. By late August I was officially licensed and "making the big bucks" as some would say. As December approached, letters from all the different loans companies started flooding my mailbox. How do you want to pay off your loan? 10 years or 25 years? Standard or Graduated? I knew I wanted to go with the fastest route possible so I went with the 10 yr Standard Plan.
One thing that I wasn't prepared for was not getting full-time hours. I was hired as a floater and 24 hrs was enough to have benefits and be considered "full-time" in my employer's eyes. Therefore, for the most part, I was only working 3 days a week and not really making enough to be on the 10 yr repayment plan. It was extremely stressful because at the time, both of my parents had lost their jobs so in addition to paying off my own debt, I was also paying for our home expenses. They dug into their savings to pay the mortgage but it was my responsibility to pay for everything else. Because of that, I ended up changing my loan to the 25 yr Standard plan. I figured I could always pay more when I had extra money rather than stress myself out trying to make payments. This definitely made it much less stressful.
First order of business was to start saving up for an emergency fund. As a floater, I knew my job wasn't very stable and when you first start out, you're also not very good (just being honest here lol) so you're not being requested very often. So from August to December (when my loans were going to be out of deferment), I saved and saved.
The second decision I had to make was how to plan my attack. There's usually two ways to go about this: either start with the loan with the highest interest (aka the "Math Method") or start with the loan with the smallest amount (aka the "Snowball Method"). Here's a great article on one versus the other that might be helpful. I went with the Snowball Method. I decided to completely pay off the Perkins Loan with the money I had saved up from August to December. One down, 3 more to go.
In August 2012 (one year after graduation), my loans looked something like this.
It wasn't a particularly pleasant sight but the silver lining was that at least the Grad Plus Loan was finally under 100k. By early 2013 I had saved up a decent amount but I was having a difficult time deciding what to do next. Should I just go for it and pay off my undergrad loan completely or should I pay off the Grad Plus Loan with the higher interest? I decided to just eliminate my undergrad loan. The satisfaction of completely eliminating a loan was worth going against logic, I suppose lol.
I won't bore you with what happened in 2013 and 2014. An Excel spreadsheet is worth a thousand words.
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| note: "Differences" were calculated by subtracting the total owed this year by the total owed last year |
I also wanted to mention that the snowballing method just happened to work out for me because the loan with the lesser amount ended up being the loan with the higher interest (after I paid off my undergrad loan) so at this point, it's a no brainer as to which loan I should pay off first.
My ultimate goal would be to completely eliminate my Grad Plus Loan which is a pretty hefty goal. A couple of things I do want to use to my advantage this year are my bonus which comes around mid-March and my employee stock option which I was "gifted" when I first started with the company and is now fully vested. I may also borrow money from my 401k (at half the interest of my loan) to pay off a good chunk of the loan. Just a few things to mull over this year.
I hope this post was helpful to those of you with student loan debt. I do want to note that this method might not work for everyone. I have friends that are using the income-based repayment plan which might pan out better for some people. I believe the income-based repayment plan makes it so you don't pay more than 10% of what you make per month (based on your salary the previous year) and you pay that for 25 years. After 25 years of on-time payments, the rest of your loan is forgiven. I didn't really have the time to calculate out which would be better and as such, went with what I already know.
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