chalkboard, school, education, student loans, debt, paying off loans
Financial Independence 101,  Personal Finance

How I Paid Off My Student Loans In Less than Five Years

In 2016, I paid off all my student loans in less than five years after graduating from college. So how did I do it? I think the first step is to say: the biggest impact on paying off student loans is your earnings and your savings. Without these two factors, nothing else matters. Below I’ll take you through my exact situation and how I paid off my debt.

Let’s contextualize student debt in the US through a series of data points:

  • $1.5 billion – the amount of student loans outstanding in the US (Q1 2018)
  • 44.2 million – the number of Americans with student loan debt
  • $39,400 – the average amount of student loan debt after graduating from college (Class of 2017)
    • $42k – MBA
    • $58k – Master of Arts
    • $140k – Law School
    • $161k – Medicine and health sciences
  • $351 – the average monthly student payment (for borrowers aged 20 to 30 years)
  • 10 years – average time it takes to pay off student loans
    • There is a lot of conflicting information out there that would disagree with this stat (e.g. 49% of statistics are made up on the spot):

This is coupled with a significant growth in college costs (way above inflation): 

Whoa…let’s take a step back a little bit through time and examine Mr. Banana FIRE Guy.
A clue to how far back we’ll be going:
AOL instant messenger, CD, AOL CD, The Atlantic
Credit: The Atlantic

Banana FIRE Guy’s College Finances

  • Four-year degree – I got my B.A. in the very prestigious field of…Communications. (Not a lot of recruiters for me straight out of college).
  • 2 years – I was lucky enough that my parents help to fund 2 years of college for me (Insert obligator snob reference).
  • Dorm living – I lived in the dorms for two years and had three years outside of them. (Yes, I  went to school for 5 years, but in my defense this wasn’t a Van Wilder free-wheeling situation where mom and dad paid all the bills. I took a semester off for a prestigious internship that didn’t pay me anything and required I move to a really expensive city.)
  • $25k – I came out of school with roughly $25k in student loans. Not bad. I also worked 40+ hours a week my senior year of college and had a wonderful GPA of something like 3.2. (Why do people obsess over their GPAs? That’s a topic for another episode).
  • $60k/year -My average income during my first 5 years out of school.
  • $0 – my final loan balance after five years! For the fun of it, I went back to Nelnet (I hate that site) and there are few pleasures greater than seeing this:

NelNet home screen, student loans, zero balance, NelNet, payments,

So let’s break down these numbers in a way we can figure this out:

By amount owed (by year out of school): 

  • Year 1: $26k. This was largely because I deferred my payments for a year.
  • Year 2: $24k. I paid minimum payments and only got $2k out of the balance.
  • Year 3: $22k. This was a similar situation of paying minimum payments.
  • Year 4: $16k. Four years in I started getting serious. I knocked out $6k out of the balance by doubling my payments in the years before.
  • Year 5: $0k. I got so fed up with my student loans that I went crazy and paid it all off in one go. I remember the feeling of joy knowing I would now longer have to pay out $500+ a month to these people. Gone forever!

Here are some key tips for paying off your debt:

  1. Understand how much debt you have. This sounds pretty obvious, but I think one of the challenges of graduating with a mountain of student debt is trying to ignore it. It’s something that can be accomplished in a few hours (most of the time), but log into your accounts, find out your balances, and make sure you know exactly how much you owe.
  2. Figure out interest rates. Different loans have different rates so dig into these. Odds are when you go to your loan website you’re going to find a host of loans with different rates on each one. Make sure you understand how much they are charging you.
  3. Find out your strategy for paying off debt:  
    • Snowball: This is advocated most prominently by Dave Ramsey and can be summed up as: pay your debts off smallest to largest. The psychological benefits of paying off your first loan will likely spur you to keep going…or have a nice cry…or if you’re lucky, both!
    • Avalanche: This is another method of simply paying off the loans with the highest interest rate first. This makes most logical sense as you’re killing those loans that have the highest charges every month.
    • El Niño: Hoard your cash and wait for the biggest storm of the century to hit your city/town/country. Go to the highest building you can find and throw your cash into the air. Tell your friends to do this too and grab all their money and pay off your loans. (This is my term, not endorsed by financial providers…though it could be!).
      • Note: I spent about 15 minutes watching SNL bits for Chris Farley after that link reference. My favorite comment on YouTube about El Niño:
        • El Nino, SNL, Chris Farley SNL,
  4. Ask yourself some hard questions. 
    • How much in student loans do I have? Ex: $26k.
    • How long do I want to have student loans? Ex: For as little time as possible because they are a soul-sucking bane on my existence.
    • What is my ideal time to pay off my loans? Ex: I’d like to pay these off in 5 years.
    • What will it take to pay this off early? What do I have to give up now to get where I want to go? Ex: I will have to pay off my loans at the start of each month and give up some expenditures like eating out or other paid entertainment.
    • How can I automate this so I don’t have to think about it? Ex: I automated payments the first four years and then began bulk payouts to individual loans in the last year.
  5. Pay it off. This is the easy part and groups like Nelnet make it really really easy to pay them.
    • NOTE: There’s a lot of debate in the community about what type of debt to prioritize debt especially if you have credit car debt. I recommend that you pay the highest interest loans first, but you do you.

Some Resources:

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