It’s no secret that college is expensive. In 2018, NerdWallet reported the total outstanding student debt from federal loans alone is $1.5 trillion dollars! Significant debt negatively impacts your credit score, as well as that of any co-signers you may have. In addition, being in debt can prevent you from leasing your own car, renting an apartment, or purchasing your own home!
What can you do to prevent your student loan debt from taking over your life? Brian Brenberg, Chair of the Program in Business and Executive Vice President at The King’s College, Manhattan, has three steps to ensure you can build a solid financial foundation for years to come!
Step 1: Budget, Budget, Budget!
A solid, realistic budget is the key for you to be able to live your best life. One way to do this is the “zero-based budgeting” method championed by Rachel Cruze; seasoned communicator and daughter of renowned financial counselor David Ramsey. This method ensures that every dollar of monthly income is spent by the end of the month (hence the “zero” in zero-based budgeting) and that each dollar spent has a purpose. Think of it like having a professional organizer manage your bank account! Let’s see “zero-based budgeting” in action:
Pretend you’ve landed your first full-time job right out of college, and you’re making $2,500 per month. You’ve decided to live at home for a few years to save up for your own place, but Mom and Dad expect you to pay rent. Living at home means you need to commute to work, and that trusty car you received when you got your license will need gas and maintenance. You also have two student loans (one federal and one private) that are on the standard 10-year-plan. How will you “zero-out” at the end of the month and still be able to have fun?
First, write down what you will be saving from your income each month. TIAA recommends placing 10 to 15 percent of your income into savings for retirement; for this example, we will save 10 percent (or $250). Monthly Income Left: $2,250
Next, write down all your monthly expenses. For this example, they will be:
- Rent: $500
- Student Loans: $1,400
- Gas: $80
- Car Insurance ($115)
- Cell Phone: $45 (subsidized by your employer – woohoo!)
After all of those obligations are met, the monthly income left is $110
$110? What am I going to do with that?! This is when you plan for seasonal expenses, such as an oil change ($60) or a networking event for work ($40 – which includes the commute, parking fees, and any food and libations). With that, your monthly income is at zero!
It may feel overwhelming at first, but knowing what you are bringing in for a paycheck and what you need to take out for expenses will help you stay on the right path.
Step 2: Be Like The Flash – Pay That Debt Fast!
The best way to handle debt is to get rid of it! Brenberg recommends students opt for the fastest loan repayment program they can, and pay their full balance every month in order to prevent the accrual of interest. This means you will plan to pay your student loan debt in full in 10 years. If you can afford to make a few extra payments on your loans, that will help too!
What if you’ve set your student loan payments on automatic withdrawal? Not a problem! If you want to make an extra payment, you can request a one-time payment be made on your loans through your servicer’s website.
Step 3: Stop! Don’t Go to Grad School!
Pursuing further education may seem like a necessity in a world where a bachelor’s degree is the new high school diploma. But Brenberg states that “…universities are motivated to keep you as long as they can – first as undergraduates, then in master’s programs or law school, or maybe even a Ph.D. program!” If you’re not sure where you want your career to go, don’t jump into graduate school and accumulate more debt! Take this opportunity to apply for entry-level positions and explore where they can take you!
Class of 2019: your future can be bright with a little bit of fiscal responsibility! Take this advice, and you will be sure to succeed!