“It doesn’t seem fair. She has $ 131,000 in student loans and cannot afford to live on, even though she earns $ 110,000 a year. How She – and Other Borrowers – Can Get Rid of Student Debt Faster
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Student loan debt hit a record $ 1.73 trillion in the second quarter of 2021, according to the Federal Reserve. So when we got the following letter from a borrower in heavy debt for their student loans, we wanted some finance professionals to help us because the debt repayment strategies for them are similar to those millions of Borrowers who are tackling their loans may also want to consider. Here’s her question and what financial professionals think you and she should do to reduce student debt.
Question: I am now 39 years old and in a better position in my life than I was about 10 years ago when I decided to take out over $ 100,000 in student loans to pursue a master’s program in food policy and in nutrition. The program was the only master’s program I attended, and I didn’t care about the cost – I didn’t even look at what I was signing up for.
Now, in total, between my undergraduate and graduate loans, I owe $ 131,000. Some of the loans are federal and some are private; one of these companies charges an interest rate of 6%. While most of my loans are on hiatus now (thanks to the federal government), I’m worried about what will happen when it ends. The loan repayments are too expensive, although I am now a nutrition and public health consultant working on a contract basis and earning a good salary – $ 110,000 per year.
But our mortgage costs $ 1,100 a month; daycare is roughly the same, and car payments are $ 400. Otherwise, I feel like we live very frugally: we even bathe our son in a Tupperware tub because our bathroom needs updating, but we don’t have the money for it! We cannot even afford, as we do, to contribute to retirement or pay for some much-needed dental care. Honestly, I don’t know what we’re going to do when my loans are released. How can I get out of debt faster? -Erine
Reply: First of all, you’re not the only one who feels overwhelmed with student debt, and you do certain things right, like “limit the mortgage and the car loan”, both of which are “well within your range. for your income level, ”says Mitchell C. Hockenbury, a certified financial planner at 1440 Financial Partners in Kansas City. But, Hockenbury says, with your low mortgage and other seemingly reasonable expenses, you should see if there is more money to be spent on paying down the debt. Even if there isn’t, once the daycare is over, you will have that money to pay off your debts more aggressively.
The next question is whether to refinance the loans to save money. But first, consider that right now your federal loan payments are on hold, and you need to be careful about refinancing a federal loan to a private loan as you will lose some of the federal loan protections (you can get details on the amount of refinancing could save you here). That said, Ethan Miller, founder of the Washington, DC-based financial planning firm Planning for progress, says Erin would probably have to refinance some of his loans with a private company because some fixed student loan refinance rates now start at around 2.5%. “If you are confident in your income and know that you will have a job for many years to come, this is the best option,” says Miller, who adds that Erin would probably have to wait until the student loan hiatus is over to refinance its federal loans. , if she decides that it is the right decision for these loans.
There are other options as well, says Hockenbury: “Is it possible to take a refi withdrawal? Interest rates are low, house prices have skyrocketed. Maybe she could use the money to pay off some of her debts, ”he says. Even though, of course, she has to be sure that she can repay that or she risks losing her house.
Bottom line: Erin apparently has no good way of not repaying her loans (on the one hand, it does not appear that Erin is eligible for a loan cancellation program like the Public student loan forgiveness program, because she is a subcontractor in a government agency, not a full-time employee, explains Miller). But if she looks at her budget, she can find extra money to pay off her debt faster; refinancing at least some of its loans at today’s low rates could make payments more manageable, and a withdrawal refi may be another option. Good luck, Erin!