Sunday, September 21, 2014

From the desk

Cassidy

For those of you who have parents paying for your college education or the government giving you a Pell grant to round off what is not covered in scholarship money, this From the Desk will not really benefit you — though, you may glean some advice on how to pay off future debt, should you acquire any.

For those of us who have parents too rich for us to get an adequate amount of financial aid that does not accrue interest and too poor to actually pay for our college education, we will soon be looking at a rather large amount of student loans to pay back.

The Project on Student Debt, a group of employees from the Institute for College Access & Success who are trying to make higher education more affordable for students, found that two-thirds of 2011’s graduating seniors had some sort of loan debt, with a national average of $26,600 per person.

Jumping over to finaid.org’s student loan calculator, at $26,600 in unsubsidized loans with a term of 10 years, it would take $306 a month to pay back what you borrowed for your education.

However, what is truly frightening is the additional interest you would be paying. Instead of just paying back that $26,600, you would be paying a total of nearly $36,733, an addition of approximately $10,133.

To avoid this drastic amount of extra money, I have compiled a list of my top five tips to paying back debt before it starts controlling your life. If you actually follow these, then you might be one of the few lucky ones who in 10 years will not be swimming in debt and regretting going to a private institution.

First, and probably the most important tip: start paying back your unsubsidized college loans while you are still in school.

These lovely loans from the government automatically begin accruing interest the moment the loan is awarded — and at 6.8 percent, that interest builds up fast. By paying off at least the interest you acquire on these loans, you reduce the amount of future debt you have pretty easily. Remember, next month’s interest is being calculated based on what your loan amount increased by last month.

Paying off subsidized loans while still in college is not as vital, as interest does not affect them until after you graduate, and at a generally lower rate.

Tip number two: pay more than the minimum for each loan. This may seem like common sense, but believe it or not, I had no idea you could even do this before I started researching the fastest ways to get out of debt.

If you are only paying the minimum each month, you could be adding years, and thousands of dollars, onto your loans. Remember the extra $10,133 that the average college student would be paying at $306 a month? If the student scrounged up $524 a month, then he could easily pay off his loan in five years and only pay an additional $4,852 in interest rates, a total savings of $5,281.

The third thing you should be doing to pay off your loans might not be as easy. Give up the fancy restaurants, new designer clothes, name brand cereal and monthly concert tickets. In other words, start living frugally.

Spending $4 on coffee each day can add up to the $120 a month that you could be using to pay off those interest rates from tip number one.

Tip number four: make a budget and actually follow it. Chances are you have gotten bored and taken the advice of your economics 101 professor and made a budget at some point in your college career. But my hunch is that you have not been truly following it.

A budget will help you with tip number three — not spending money on the things you really do not need. Try keeping a budget for just three months to get started.

Finally, stop worrying. There are hundreds of Bible verses reminding us that God really is in control, but perhaps the first one that comes to mind about worrying is Matthew 6:34 — “Therefore, do not worry about tomorrow, for tomorrow will worry about its own things. Sufficient for the day is its own trouble.”

Once you realize that Jesus has already paid the only debt that truly matters, everything else becomes easy.

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