Written by Common Cents

I was a part of that lucky generation that graduated college to find ourselves in the midst of a housing crisis and the worst economic recession in decades.  During my time in school, I lived as frugally as anyone could expect; I worked three jobs part-time around my class schedule, had roommates, drank cheap beer and generally had a great time (albeit on little sleep).  I went to a respectable UC school all 4 years, and did my best to navigate the FAFSA and financial aid office, but I quickly learned that only half of college is the classes, and the other half is the logistics of going to college.

Let’s talk entrance counseling: the 15 minute online quiz before you accept any student loans.  Do you understand you’re taking out a loan?  Yes.  Do you understand you have to pay them back?  Yes.  At the end you’re considered “counseled”, and pretty soon you have thousands of dollars awaiting your acceptance!  First questionwhy wasn’t this a mini-course we had to take in high school?  There are so many more ins and outs of student loans than I could have fathomed, and almost none of them were covered in this “entrance counseling”.

I didn’t learn until much later that you could opt to return a portion of your un-used loans, or that summer courses were calculated differently for loan disbursements.  I had to figure out the difference between a direct and a ParentPLUS loan, public versus private, subsidized versus unsubsidized, the list goes on.  What the heck is forbearance?  How about deferment?  I only learned many of these terms once it was too late, and still knew a lot more than my peers, who were taking every loan they were offered, and burning right through them as fast as they could say “I’ve got the next round!”

As graduation loomed and we watched Wall Street CEO’s beg for jobs on the news, the grim reality of my situation set in; I had to get a decent job in the next few months and start paying these things off, or I’d be in deep trouble. June arrived all too quickly, and the student loan notices started coming, notably more intimidating than the cheery “exit counseling” quiz, gently reminding us that we agreed to pay these loans back.

The money easily given had now come due, and at an alarming price; I was lucky to have my rates capped as I only took out federal and school loans, but even some of these were at 6.55%, with the lowest right at 5.00%.  Such seemingly tiny numbers quickly ballooned into tens of thousands of dollars, and the reality hit me like a ton of bricks: I would be paying for college for a long, long time to come.  And then I did what any genius 22-year old would do faced with tens of thousands of dollars of debt – I went and racked up some more.

I had a full-time job right out of school making a small but respectable hourly rate; I lived in a tiny apartment, didn’t spend money on anything but bills and food, and I was barely scraping by.  When I realized my first payments were coming due, I panicked – how was I going to pay more than what I was paying now?  I wasn’t in a position to ask for more money – I had no experience and was lucky to have a job at all.  I couldn’t downsize any further unless I moved into a cardboard box, so with my back against a wall, I made the brilliant decision to go to grad school.

Now I’ll pause here to say that graduate degrees in many cases are worthwhile ventures, and I have the utmost respect for anyone that’s completed grad school.  Personally, I made it 5 months before realizing I’d made a horrible mistake.  I loved Architecture, I loved spending 17 hours in the studio drafting, I loved spending weekends in the wood shop building tiny models, and discussing the various merits of function vs. aesthetics.  But I also knew deep down I was putting off the inevitable, and that the loans I had taken out for this one semester were equivalent to about a year and a half of my undergraduate degree.

At a time when I wanted nothing more than to escape into a world of beauty and design, I decided it was time to face reality… I knew that many of the older students were having trouble finding jobs when they got out, and that soon I’d be facing the same cruel job market, but this time tens of thousands of dollars more in debt than before.  I decided to cut my losses, and get to work paying off the damage I’d already done – architecture would always be a passion, but it wasn’t going to be my career.  And looking back, it’s one of the hardest but best decisions I’ve ever made.

I felt like a quitter, but in time my instincts would prove true; I watched classmates struggle to find work, and while a few have gone on to become successful, I’m so much happier working in a field that allows for a work-life balance that I don’t think I could have expected if I had stuck it out.  At this point I was back at home, I had the benefit of another grace period to figure things out, and I was determined to start making some headway on my debt.  I got a job working for a construction firm as an account administrator, and spent the next year saving up and eventually moved out on my own.

Over the next several years I bounced around between a few different jobs, before finally deciding to move back to Southern California where my future husband was stationed.  I got a solid job with decent pay and benefits, and since we were splitting rent and bills with a roommate, my expenses were finally at a level where I could catch my breath, get on my feet, and make a plan for tackling my debt.

The first step was taking a good, long, detailed look at my student loans.  I cannot recommend this enough to anyone trying to get out of debt – it’s never going to happen unless you first sit down and LOOK at it.  In depth.  All in all I had 9 individual loans, 8 from my various undergrad disbursements and 1 big one from my semester at grad school.  7 of them were bundled into monthly payments, and 2 of them were grouped into quarterly payments (again, where was this information when I took out my loans?  Buried deep in the fine print, apparently).

The next step was looking at my interest rates; I mentioned before that mine were capped, but as I was learning in the accounting courses I was taking for my job, the “interest rate” and the “effective” interest rate are two different things; this interest had been building up since the day I got out of school, and tackling it was a daunting task.

Next up was looking at my payment plan; many people swear by income-driven repayment plans, but I ran the numbers and liked the graduated payment plan best.  It kept my monthly payments relatively low at the beginning, and they would increase every two years under the assumption that I’d be making more money as time went on.  As I’d already held numerous positions and had been able to negotiate a fair salary at each of them, I was confident that I could expect to make more money and pay more on my loans over time.

At several points since I graduated I’ve also looked at refinancing, but to date it has not made financial sense for me.  My rates were fixed, I could choose to put extra money toward specific loans to pay them off faster, and frankly I didn’t have enough to justify refinancing.  I’ve found that people with private loans start with higher interest rates than federal or school loans, so refinancing makes more sense in those cases, as well as starting with larger principal balances.  Refinancing varies by individual and by company, so shop around if you’re curious what they might offer you; it can’t hurt to find out.

*Disclaimer: be wary of adjustable rates, and that goes for any type of loan – they WILL come back to haunt you, so even though the lower monthly payment looks nice right now, don’t fall for that adjustable rate trap!*

I researched different methods of paying down debt, and decided the snowball method would work best for me.  The snowball method tackles the smallest principal balance first, while the avalanche method goes for the highest interest rate first.  Since all my rates were pretty similar, and I had some relatively small loans I could start picking off first, I started making my first additional payments.


At first I was just doing an extra $50/month and putting it toward the smallest loan.  It wasn’t much, but it was something, and it was nice to see the principal actually go down instead of interest eating up most of my payments.  I continued in this manner until I got my current job almost 2 years ago, when I got a big bump in pay, and could put an additional $100/month on top of what I was already paying.  Any bonuses I get go straight to my loans as well, and it’s so rewarding to see the balance come down dramatically with those larger payments.

To date, I’ve paid off 3 out of the 9 loans in full, and am due to knock out the 4th one next month.  I set a goal for myself this year to knock out my quarterly loans entirely, and to be halfway done with my student loans before I turn 30 in June, which I’m on track to do.  Where I spent the first few years struggling to pay down the interest, now roughly 70% of my monthly payment goes toward the principal, so the more you can put down earlier, the better.

It’s not a perfect system; I seriously debated skipping the additional payment last year around the holidays, to have a little more money for presents and travel, but sticking to it will have me out of student loan debt entirely in the next few years.  The main takeaway here is this: don’t put them off if you can help it, and don’t take out more than you need.  Every penny you can save on the front end will save you exponentially later in interest, and the sooner you start to make additional payments, the sooner you’ll be out of debt and on to bigger and better things.

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