Real Cost of a College Education (Part 3)

This is the final post in our three-week series on “The Real Cost of a College Education.” In Part 1, we looked at how families, especially low-income families, overestimate the cost of college and, as a result, often make the poor financial decision not to attend college at all. In Part 2, we looked at strategies for reducing the cost of higher education, including getting an associate degree instead of a bachelor’s degree, earning free credit for college online and entering school with a lucrative career path already in mind. We also began to discuss dealing with student loan debt. In this third and final installment, we’ll take a up-close look at how to get rid of student loan debt quickly.

Remember: Student Loan Debt Has Been Exaggerated

As mentioned in the first installment in this series, the media has been largely responsible for exaggerating the problem of student loan debt. Although there are certainly individuals with student loan debt topping $75,000, this is actually a rather tiny percentage of the graduates who carry debt. A much more common student loan debt figure is around $10,000.

Even $10,000 of student loan debt can certainly slow down your financial future if you’re not smart about how you handle it. Search the Internet for “student loan debt horror stories” and you’ll find plenty of examples of people who have had their lives derailed by their debt. However, if you look more carefully, you’ll also find plenty of student loan debt success stories. Here are two of them to provide you with ideas for unloading your debt in no time.

Kristin Wong Paid Off $12,000 in One Year

Kristin Wong is a staff writer for the popular website Get Rich Slowly. Back in 2005, Kristin had just graduated from college. She had a pretty average amount of student loan debt; with interest, Kristin owed about $12,000. After graduation, she got a good job, health benefits and her first apartment. Lucky for her, Kristin’s father had just started reading The Total Money Makeover by financial guru Dave Ramsey. Her dad started pestering her about paying off her debt as quickly as she could. Thanks to dad’s persistence and horror stories she’d heard about student loan debt, Kristin was motivated to get rid of her student loan debt in a single year. Here’s how she did it:

1. She realized that there’s no such thing as “mad money” when you’re deeply in debt.

Let’s face it: We all want to use our money to have fun once in a while. We see a nice pair of shoes and, on a whim, we buy them. Our friends invite us out for drinks on a night when we’d planned to stay home. Spending money for fun like this is often called “mad money,” a set amount of money you budget each month just for fun.

Kristin didn’t have any “mad money” during the year that she got out of debt. Granted, she admits that she did have a few weak moments, but by and large, she was strict with her spending and didn’t spend money on frivolous things.

2. She was in constant communication with her lender.

If your student loan is set to be repaid over a certain amount of time, for example, 20 years, you may find that your lender will apply your payments to future interest rather than to the principal. That means you’re paying for interest that you haven’t even accrued yet! To remedy this situation, Kristin lowered her repayment terms several times. She watched her statements like a hawk and made sure that her debt was being appropriately reduced.

3. She moved back in with mom and dad.

When you graduate college, one of your top goals is usually independence from your parent or parents. However, as Kristin’s debt fell from $12,000 to $6,000, she realized she could pay off her remaining balance in no time if she didn’t have to pay rent. She swallowed her pride, gave up her apartment and lived with her parents while she paid off the remaining balance.

Stephanie Hood Paid Off $90,000 in Debt in Three Years

Stephanie was 24 by the time she finished her undergraduate and graduate degrees. She left school with a pile of credit card debt and tens of thousands of dollars in student loan debt. She landed her dream job in Washington, D.C., but because it was non-profit work, she was only making $50,000 per year — a good but only average salary. She rented an expensive apartment in DuPont Circle for $1,400 per month and had fun partying with friends each weekend, dropping money for clubs and drinks without a second thought. Unlike Kristin Wong, she didn’t see her debt as being a terribly big problem. She paid the minimum due on her student loans each month and forgot about it.

A new boyfriend with a more realistic view of debt helped her to see just how much she owed and how long it was going to take her to pay it off. With her boyfriend’s help, she devised a plan to unload $90,000 in debt in just a few years. Here’s how she did it:

1. She cut her expenses.

Stephanie’s first order of business was moving into a cheaper neighborhood and getting a roommate. This move alone saved her almost $700 per month. Next, she dropped her expensive gym membership and used the small-but-adequate gym at work. She got rid of her cable subscription and watched free TV shows on her laptop instead. Meanwhile, she stopped doing so much expensive partying with her friends and used to find free things to do, like group hikes.

2. She found ways to make extra money.

Cutting her expenses down helped a great deal, but to get rid of all her debt she needed extra money. Amongst other things, Stephanie picked up baby-sitting jobs, got paid to participate in focus groups and used freebies earned from being a mystery shopper to pay for fun nights out with her friends or boyfriend.

Conclusion: Getting Rid of Debt is Difficult But Rewarding

It probably wasn’t easy for Kristin to move back in with her folks or for Stephanie to give up an apartment she loved in a chic neighborhood. However, both of them agree that the long-term financial security was well worth the short-term sacrifice. Be inspired by these stories and know that you, too, can pay off your student loan debt faster than you think.