Guest Blogger: Brandy Camille Huff : @More Ways Than 1
Tackling student loan debt requires a money mindset makeover of its very own. The weight of the financial burden is often multiplied by feelings of failure and discouragement. When job prospects are low and salaries are not even in the range to justify— let alone cover— what you owe for your education, it can be hard to imagine yourself financially well.
The Consumer Financial Protection Bureau recently published a report that identifies four elements that define financial well-being:
Student loan debt may feel like an immovable obstacle to financial well-being, but Tiffany the Budgetnista and thousands of women participating in her Live Richer Challenge are proving everyday that your dream of fulfilling work and financial freedom is not out of reach, no matter how much money you owe.
I’m making progress toward my financial goals despite having $122,000 in student loan debt. Thanks to the Budgetnista, I’m also empowering others by sharing helpful information.
Here are some student loan tips to help you take charge of your student loans and position yourself to live richer.
1. Pay Bi-Weekly.
Send half of your monthly loan payment every two weeks, rather than sending the full payment once a month. 26 half payments add up to 13 full payments per year instead of 12. Those extra payments decrease the life of your loan and the amount of interest you pay. ReadyforZero has a free bi-weekly payment calculator that shows how much time and money you can save.
Bi-weekly payments are a great way to balance practically any monthly expense to ensure that your entire check doesn’t disappear when too many due dates fall within the same pay period.
I pay my cell phone bill and my daughter’s preschool tuition in two payments each month instead of one. My car loan is on a bi-weekly payment plan too. The money is automatically deducted from my bank account and transferred to the credit union. APCU has a great loan calculator that generates a full amortization schedule that shows how much of each payment will be applied to interest and how much will be applied to principal. An internet search can also help you find various calculators and tutorials on how to create your own versions of these tools.
2. Instruct your loan company to apply overpayments toward your principal balance.
Your loan company may not automatically apply additional payments toward the principal amount of your loan. You may have to submit a written request specifying how you want your payments applied. Once the interest due is satisfied, anything beyond that amount should go toward paying off your principal balance. My loan company automatically applies my overpayments to principal when I pay online, but that is not the case with every lender.
3. Set up your own automatic payment schedule.
Do the math to determine if the interest discount your loan company offers for auto-debit saves you more than making bi-weekly payments. If you enroll in auto-debit for an interest rate reduction, and the only option is to pay monthly, you may still want to explore setting up additional automatic payments through your bank or pay manually online. Here's the reason: Interest accrues daily. Each time you make a payment, the interest cycle restarts. So if your payment is due on the 30th, and you only make the one payment, you pay 30 days worth of interest, but if you split the monthly payment and pay half on the 15th and half on the 30th, each of those payments will only have 15 days of interest accrued, and you can pay more toward principal as you start knocking that balance down.
You can also pay off your debt faster by increasing your bi-weekly payment amounts in increments of $10 or more. Those small increases multiplied by 26 payments per year can add up in a big way.
4. Make large overpayments on the day the interest is lowest.
If you want to use your income tax refund, a salary bonus or other lump sum to make a large dent in your principal balance, keep the interest cycle in mind. Pay the amount of interest accrued since your last payment on one day, let’s say the 15th, then drop a big payment on the 16th when the interest cycle restarts and the amount accrued is lowest. As with any overpayment, you’ll want to make sure that your lender applies the payment to principal as you have instructed.
5. Stick to your own payment schedule.
If you pay ahead and the loan company says you don't have to pay anything for the next month, pay anyway. The loan company does that because it benefits them when the interest cycle runs the full 30 days or more. Stick to your bi-weekly schedule which benefits you.
6. Ungroup your loans for more payment flexibility and control.
I have four private loans with Navient aka Sallie Mae. I requested that they are kept separate so that if I want to pay on two and put the other two in forbearance or deferment, I have the option because they are not all grouped together. I can also use the debt snowball method to pay more for the lowest loan balance and work my way up from there.
7. Review your deferment options.
Sallie Mae offers an Internship Deferment. They don't require any verification regarding your employment. They only require a signed document from the organization stating the length of your internship. Be creative and offer a specific service on a project basis, rather than a daily schedule. An unconventional internship with an organization whose mission resonates with you can be a great opportunity to network, expand your resume and make a positive impact in your community. Sallie Mae does not ask for extensive details about the internship. However, the company does limit how many months of deferment you can receive, and that limit may vary depending upon your specific loan agreement.
8. Know your interest cycle and how it accrues.
At one point in time, I was calculating my paid interest and paid principal down to the penny. You can see how interest accrues on your loans by viewing the FAQs on your loan website, your promissory note, or the terms detailed on your loan statements. For my lowest loan balance, the interest is about $1 per day. For my highest, it's $3.76 per day.
The compound interest formula is:
(unpaid principal x interest rate) / 365 = daily interest
daily interest x number of days = interest due
9. Know how and when your interest rate may change. Know how and when your accrued interest capitalizes.
My variable interest rate is 4.25%, which is the Federal Prime Rate + 1%. The rate can change quarterly if the Federal Prime rate increases or decreases. If I use a deferment or forbearance, my interest will capitalize during the quarterly cycle following my deferment period so I can set a goal for how I will pay the interest with supplemental income before it capitalizes based on that time frame.
10. Think offense. Not just defense.
I've been playing defense with my loans for years just trying to keep up with the payments. I realized last year that I have never really attacked my loans. That's what I'm doing differently this year. I’m generating additional income to attack my loans and sharing information to empower others to do the same; like this guy here and this girl here. Another man named Matthew Burr paid off $74,000 in two years by making payments six or seven times a month. His plan involved a lot more sacrifice, but he achieved his goal.
11. Submit your student loan complaints to the Consumer Financial Protection Bureau
The CFPB educates consumers, enforces federal consumer financial laws, and uses information studies to better understand consumers, financial services providers, and consumer financial markets. I submitted a complaint last year about Sallie Mae, and they responded very quickly.
12. Check out these organizations to stay abreast of student loan news, policies and more:
13. If you or someone you know plans to finance an education, I highly recommend this book:
Do you have more student loan tips? Empower others by sharing your strategies and success stories in the comments below!
Brandy Camille Huff is an advocate for holistic wellness, financial literacy and affordable education in Atlanta. She is currently developing a blog on resourcefulness called More Ways Than 1 to inform and inspire people of all ages to fulfill their dreams, with or without debt. You can follow Brandy @More Ways Than 1 on Twitter.