Will Student Loan Payments Ever End?

The Bottom Line Student Loans are often necessary to pay for college, but like any personal debt, they should be minimized as much as possible.

If you're the typical student who attended a four- year institution of higher learning, then there's a good chance that you had to take out some student loans. You spend four years studying, partying, and carousing, but when graduation time comes around, the party's over. It's time to get a job, and start paying back the debt.

Minimizing Student Loans:

A student loan should be considered a last resort, when all other methods of financing have been exhausted. You should first, of course, try to get grants because they are free and never have to be paid back. Then, you should try to work part- time, while in school, to cover as much expense as you can. Parents and relatives can then be asked for some assistance. If there is still money left to pay, you will then have to turn to loans.

One temptation you should try to avoid is taking out loans for more than the cost of your tuition. Getting a loan for $5,000, when you only need $3,000 to pay off your tuition bill, and then pocketing the difference is very tempting. But try to resist, if you can.

Interest Rates/Terms:

One good thing about student loans is that they usually carry a low rate of interest. This makes them a low priority, in most peoples minds, to pay back. When I graduated in 1989, I had four student loans, with interest rates of 10.5%, 8%, 8%, and 5%. Compared to the interest rates on most other types of consumer debt, like credit cards, car loans, etc., these rates on student loans are not very high at all, which makes student loans, justifiably, a lesser priority to pay them off quickly.

Student loans for undergraduates usually carry a ten- year term, but can sometimes extend to twenty years. With my loans, the one with the 10.5% interest rate was a supplemental loan, and it had a shorter term of only five years. The rest were all for ten years. I had to begin paying back the money six months after graduation. They allowed deferrals if the individual was unemployed, or if the individual went directly to graduate school. Neither of these criteria applied to me, so I had to prepare myself for the financial blow that was about to strike.

What Plan Should I Follow?:

My total student loan debt, when I graduated in 1989, was about $19,000. That might not seem like much today, but at the time, it was considered pretty bad! When I would tell people what I owed, they would gasp and their eyes would grow big and round. They would say things like "How did that happen?",or "That's more than the price of a new car!", or "What did you do wrong? Why did you need so much extra money?".

The reason for my excessive debt wasn't poor planning, frivilous spending, or anything like that. The reason I had so many loans was that I was completely broke as a student. I went to a private school, with no savings of any kind, and no financial assistance from parents or relatives. I applied for all the grants that were available; worked non- stop for all four years; and then took out student loans for the remaining money that I needed to pay my bill. In a typical year, I was able to cover about half of my bursar bill with grants and with money from working. The other half was covered with student loans.

My monthly payment amounts were $90 (8% rate), $75 (5% rate), $55 (8% rate) and $25 (10.5% rate), for a total of $245 per month. This was almost as high as my car payment and it forced me to live through some lean times, for the first two years following graduation. I didn't really have any spare cash to apply to my student loans at the time, so I had to place them on the back burner for a while.

As I stated earlier, credit cards and other high- interest debt should be eliminated before you decide to tackle your student loan debt. Once these higher- interest loans are eliminated, you can then concentrate on student loans. What I decided to do, was wait until my car was paid off (which took 54 months) before I accelerated my student loan payoff. Without a car payment, I now had $265 additional dollars to use toward student loans.

The highest interest loan should be eliminated first. In my case, that was the 10.5 percent interest loan, with a $25 monthly payment. Once that loan was eliminated, I began to send in double payments to my $90 and $55 per month loans. I saved the $75 per month loan for last, because its interest rate was so low. Finally, in 1996, I sent in my final payment. My student loans had now been completely paid back. I paid them all off in just over seven years, which was about three years ahead of schedule. It was a great relief to not have those pesky student loans to pay any more!

Final Thoughts:

Student loans are a necessity for most students, but like any loan, they should only be used as a last resort. When it comes time to pay them back, you should concentrate on other high- interest debt first, then concentrate on student loans. The interest rates are usually low, so they are not as important as other debt.

I found that student loans were more an annoyance than anything else. At first, they really made my money tight and they did impact my lifestyle. But after a couple years, they just became an annoyance. With ten- year terms, they seemed like they would never go away. But with a little determination and planning, I was able to pay them off three years ahead of schedule. You can do it, too! It just takes discipline and patience.

Court helps people to learn how to consolidate private student loans. You can read more of his work by visiting: http://whalehookloans.com.