Graduation! and 5 Steps To Take During the Grace Period
When I graduated in 2015, I was absolutely elated. Like, head-in-the-clouds, skipping around, so. freaking. happy. I had (and still have!) zero plans to ever return to school, so I knew I was finally actually finished. For good. Also, I was getting married in 7 days, so I was even more excited!
Once the dust settled a little bit (i.e. we returned from our honeymoon, I took and passed my boards, and got into a groove with work), we started looking at our finances and how this whole student-loan-repayment thing was going to go.
Much to our surprise-- seriously, this is not a joke-- my student debt burden had increased SIGNIFICANTLY since I had received my last loan payment. Again, let's remember that I was totally unaware interest was accumulating during school. I truly felt such a visceral panic when I thought about loans that I wanted to avoid anything to do with them-- from checking the balance, to ensuring the terms of the loan, to telling my new husband just what we were dealing with [this is not to say I wasn't up-front about my debt burden-- he was completely in the know that I had 100K+, but the extra $20k was a little bonus neither of us expected. Insert surprised face emoji.].
And this is where the real work came in. Forget school! Understanding and creating a plan for repayment, and then actually committing to it, was not easy.
Here's a graphic to explain the 5 things you need to be consider:
1. PAY DOWN INTEREST. Gosh, I cannot stress this enough. Remember last post when we looked at how the federal government calculates interest? Here it is again:
Outstanding principal balance x # of days since last payment x interest rate factor (5.31%/365 days)
If you choose to forgo interest payments during school and the grace period, that first number in the equation becomes much, much larger. Using last post's example, your loan principal, which was once $120,000 becomes $135,930. This matters in the scheme of a 10-year repayment plan.
I referenced this before, but my husband, in his infinite wisdom, recommended we pay off all of our (read: my) interest prior to the grace period ending. That was a $15,000 error on my part, which hurts as a newly married, newly working couple. A slight bright spot in the situation is that we had our first taste of paying off huge sums of debt-- how it felt, what it meant for our future-- and we no longer had to worry about interest being consumed into our principal amount. Like I said, very slight bright spot.
2. Look at refinancing options. We'll go into this in another post, but refinancing is actually really advantageous for many people (us included!). We chose a variable rate with a third-party servicer, and we took out interest rate from 6.8% to 3.7%. Even if you don't choose to go this route, you can at least apply!
3. Consider repayment plans and schedules. Do you want to pay off debt before you consider kids? Does feeling really strapped by debt payments stress you out? Again, another post for another time, but when considering your options, I think you should weigh two things: 1. the stress that carrying debt brings and 2. the stress that aggressively paying down debt can bring. They're not the same and affect different people/couples/families differently.
4. Check your eligibility for public loan forgiveness. If you work in certain sectors, you might be eligible for loan forgiveness after 10 years of regular loan payments. As noted in the graphic, public loan forgiveness comes with many positives, but is absolutely not a "get out of jail free" card. There are big ramifications (i.e. you're losing sanity at your current job but are trapped because you've banked on debt forgiveness), and it should be noted the different political administrations have the power to change the rules of loan forgiveness.
5. Finalize and commit to the payment plan. If you've chosen small payments over a long period, stick with it! If you want to throw the kitchen sink at your debt (and thereby forgo other fun things in the short term), don't get deterred! Your loan payment plan is not set in stone, but once you've mentally committed to a certain type of lifestyle, it might be difficult to adjust otherwise. Just stay the course, and you'll eventually get there!
We're going to get into the nitty gritty of payment schedules and refinancing in the next couple of posts, but for now, we'll leave off here. Until next time!