Are Your Student Loans Really As Bad As They Feel?

I’ve talked to so many people throughout my career who were freaking out about their student loans. They feel like they're failing at money and that this debt is going to be the death of their chances at financial security. And yet when we looked into the details of their budget, I couldn’t find the issue. They were making their payments on time according to the pay-off plan and were able to afford the other necessities of their life without falling into credit card debt. And with the latest federal loan relief, many of these people have been able to make serious dents in their overall balance.

Student debt payments can be crippling for many, but not in these cases.

I realized that the psychological impact of the loans is what was causing most of the stress, not the payments themselves. People become fixated on the total balance of their outstanding debt and lament how little impact payments seem to have on a monthly basis. And because they are bombarded with messages in the media about the “student loan crisis,” they feel like they should be in crisis.

It's true that student loan debt is our nation’s fastest growing category of debt and that disadvantaged people tend to be the ones who are often saddled with the most, but this post is targeted at those people who are not in that situation.

What is it that you're actually freaking out about?

I ask you, are you just debt-averse (nothing wrong with that if you are), or are your student loans truly a detriment to your ability to pay your bills and set a little something aside for the future? If you're in the latter, then it's worth looking into relief programs, but if the truth is that you really just don't like having debt because society has drilled the "Debt Is Bad" mantra into your head, I invite you to continue reading.

It kind of IS like a mortgage

The thing is, no one ever calls me freaking out about how they need to pay off their mortgage ASAP, despite the fact that the payment may be five times greater than their student loan payment and the timeline for paying it off is at least twice as long, if not more.

Yet the way I see it, your student loan belongs in the same category as your mortgage. It’s “good debt,” where you’ll enjoy the benefits of the debt for many years beyond when it’s been paid off. The average college grad makes $17,500 more per year than someone with just a high school diploma, so I’d say it’s worth it.

How to best prioritize student debt among your other goals

“That’s all good and well,” you might be saying, “but I still hate having these loans.” I get it. When my loans kicked in, I had to get a roommate and push back some of my savings goals because I underestimated my living expenses and the impact of taxes when I signed my first lease and purchased my first car.

But as the years passed, I continued to make those payments on schedule and their impact eased on my overall financial picture as I received increases in income and paid off other debts. Clicking ‘Submit’ on that last payment in the summer of 2014 was a financial milestone for sure. In the meantime, here are some other things to think about and ways to prioritize to help take some of that psychological stress off yourself.

1. Make sure you’re first getting the match in your 401(k) as well as any matching dollars in a health savings account, even if it’s a stretch. A 100% or even 50% return on your savings outweighs the 7% or so you’re paying on your loan. It can make a 6-figure difference in your end balance and allow you to stop working years sooner.

2. Before you choose your employer based on a student loan benefit, look at the whole picture. Is the salary lower? What effect will that benefit have on your overall financial picture? Is the amount the employer is willing to pay really going to make a huge difference in your payoff timeline? Are there better benefits at your other offers like a higher match, better healthcare options or free financial coaching to help you make a plan?

3. Reframe your thinking about your loan payment. Put it in the housing payment category as just another bill. The good news is that unless you spread your payments out over your whole life, it’s a bill that will go away sooner than a mortgage in most cases.

4. Think twice before you refinance and give up benefits that come with federal loans. It’s true that refinancing can lower your interest rate and therefore decrease the total amount of interest you’ll pay over the life of the loan, but be aware that you’re turning it into a private loan and giving up benefits like income-based repayment plans or even loan forgiveness if you work in certain public service jobs.

It’s worth noting that I refinanced my loans in order to lock in an interest rate that was less than half of what I was paying, therefore cutting my payment in half while also saving me thousands in interest. So refinancing isn’t bad as long as you know what you’re giving up.

The bottom line is to stop beating yourself up just because you HAVE loans. Instead, try to focus on what else you wouldn’t have if you didn’t have the education those loans funded and then just stick with the plan.

It gets better. I promise.

Looking for unbiased, no-BS answers to your personal money questions? Book a session with me here and let's talk money!

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