This is a guest post from PT, who writes daily at PT Money: Real Personal Finance for a Life Without Limits.
I finally paid off my student loans this past year. I thought I’d share my experience and give some tips for how to treat your student loans, both during, and after college.
What Not to Do During College
Not Understanding What You’re Doing -
I know how it is. When you’re heading off to college, you just need the funds. You don’t care where they come from, or how much it’s going to cost you later. Your only concern is the immediate. Can I get the money now and can I use it to get in? I want to challenge you to think a bit differently about student loans.
Make no mistake about it. You don’t have to go into debt to get a college degree. You are lying to yourself if you think a student loan is a need. It’s a choice. There are ways to get a college degree without debt (e.g. working, junior college, military). A student loan is just an easier way.
That’s something I didn’t fully accept when I was taking out my loans. I wasn’t thinking about how much interest I’d pay over the years, or how long it would take me to pay it off. Looking back, I still think student loans are a great idea. I just wish I’d understood what I was getting into and explored alternatives as well.
Taking Out More than You Need -
Another stupid thing I did while in college was to take out the max student loan. Taking out the max meant I had a surplus of funds to use throughout the quarter for whatever. I ended up using it on dining out, stuff, and generally just blowing it. If you don’t need the loan, don’t borrow it, or at least hold on to it to pay the loan back quicker.
Student Loans After College: Next Steps
Some of you may have already graduated and are wondering what to do next with your student loan. Depending on the type of loan you have you’re going to have a few options in front of you:
Live Like a College Student and Pay them Off Early -
You’re used to living the college lifestyle. Why not stay with that for a few more yeas and buckle down on these loans? Pay them off and then go on with your life.
Consolidating Student Loans -
MD has a great post about consolidating student loans, so my advice is to go check that out. Consolidating was an option for me personally a few years post-college when rates dropped to the floor. I was stuck with 4 different student loans. Consolidating made sense at the time. But it may not be right for everyone. What it does is fix your interest and payments. It also increases the length of time to pay the loan back, which if you follow, will cost you more in the long run.
Making the Minimum Payments -
One of the things I did over the last 10 years was intentionally pay the minimum payment on my student loans. This isn’t for everyone, but I chose this approach based on a combination of two things: I had other financial priorities and because of the low interest being applied to the loan. Truthfully, I could have paid them off sooner had I buckled down. But I don’t consider it a big loss to have made them the last horizon on achieving debt freedom and financial security.
Tax Deduction for Student Loan Interest -
It being tax time, I’d be remiss if I didn’t mention the nice, above-the-line tax deduction you get each year for paying student loan interest. This can save you quite a bit on your taxes. Make sure you receive your 1098-E as evidence that you’ve paid interest throughout the year.
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I agree with all of your statements, except for maybe this one: “If you don’t need the loan, don’t borrow it, or at least hold on to it to pay the loan back quicker.”
On the surface it’s a good plan for most people. However, if you are disciplined enough (the assumption is that most college students are not) and if you are able to get a subsidized loan, take the excess amount, put it into a long-term CD, and earn a little bit of money. Once you go into repayment, take the CD and interest and pay down the loan. If you take advantage of government subsidies, the interest from the CD will be a small benefit to you.
Good point, Anthony. A very shrewd plan you mention.
Great post PT. Thanks.
For UK readers however, you should treat student loans a little differently. I recently wrote about them on my blog:
http://magicalpenny.com/paying-off-uk-student-loans/
Thanks for the self-promotion!
Certainly – I’ve put your blog in my top 5 blogroll because this site is awesome, especially considering you’re doing all this while still in college.