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Category: College

Posted on November 2, 2021

How to Create Your First Budget

Creating a budget can offer you peace of mind and give you more confidence in managing your finances. A basic budget is all you need to take charge of your money—and help achieve more of your financial dreams.

Intro to Budgeting: What is a Budget? 

A budget is a financial outline designed to measure and guide your income and expenditures for a certain period of time, such as one month, a quarter, or a year. With an understanding of the budget basics, you can track the amount you’re making compared to what you’re spending and saving.

Why do I want a budget? Consumer.gov says making a budget can help you determine your spending plan and in turn, show you where you should limit your spending and what you can afford to spend more money on.  

There are many ways you can maintain a budget — with a spreadsheet, paper and pen, or through a budgeting app.

Whether you’re new to managing your own finances, never learned how to budget, or are tired of living paycheck to paycheck, this post is for you. In our Budgeting 101 guide, we’ll go over some budgeting basics, show you how to create a budget, teach you how to avoid common budget-related mishaps, and ultimately, give you a budget calculator and some budgeting tips to create a budget that’s efficient and functional for your lifestyle. 

Need to know how to create a budget ASAP? Read end-to-end for a comprehensive course in Budgeting 101.

How to Create a Budget: 5 Actionable Steps

To plan your budget, you’ll need a few key pieces of information. With these basic components, you’ll have a foundation for your budget that you can tweak as the months go by and as your financial circumstances change. To get you a step closer to your financial goals, let’s go over how to create a budget step-by-step.

1. Calculate your monthly income after taxes

An accurate monthly income is the cornerstone of a successful budget. Without figuring out how much money you actually have in your wallet, it’s pretty hard to allocate funds towards saving, spending, and settling outstanding debts. But calculating your monthly income takes a little bit more effort than glazing over your monthly paychecks.

To find out how much you’re actually earning, you’ll need to do a little bit of simple math—don’t worry, we’ll walk you through the entire way.

Calculating your monthly income as a salaried employee

One of the benefits of being a salaried employee is knowing exactly what to expect on your paycheck—month in and month out—and this pay structure will serve as an added perk when you’re building a monthly budget. To calculate your pre-tax monthly income as a salaried employee, all you need to do is divide your annual salary by 12.

Now that you have your gross monthly income figured out, you’ll need to deduct taxes and other expenses that may dock your pay—such as medical benefits and contributions to an employer-sponsored retirement plan. We’ll show you how to estimate this number in just a moment, but first we’ll go over how hourly employees can calculate monthly income.

Calculating your monthly income as an hourly employee

 If you’re an hourly employee, your monthly income isn’t always as consistent as you might like it to be, but with the proper budgeting technique you can definitely nail down a budget that maximizes your monthly income and gets you closer to meeting your greater financial goals. Here’s how to figure your monthly income as an hourly employee:

Let’s take a look at an example:

Keith is an hourly employee who makes $15 an hour working 40 hours per week, making his gross weekly income $600. Keith multiplies this number by 50 to reflect the weeks he plans to work throughout the year (minus his two-week vacation). Then, he divides by 12 and estimates that his gross monthly pay is $2,500.

Remember, this number does not factor in the deductions that may impact his take-home pay, so now he’ll have to subtract these from his gross monthly income to get an accurate picture to build his monthly budget.

Subtract taxes and other deductions from your gross monthly income

To get the most accurate picture of your monthly take-home pay, you’ll need to subtract taxes and other deductions from your income.

  • Federal Taxes: To find out your federal tax liability each month, refer back to your annual gross income that you calculated before. Then, compare your income to the federal income tax rates to find out what percentage of your income will go toward your federal income taxes. Once you’ve found this number, divide by twelve to estimate your monthly tax liabilities.
  • State Taxes: Calculating your state income taxes is essentially the same as finding your federal tax liability, but this time, you’ll need to refer to your state’s income tax rates. Multiply your annual income by your tax rate, then divide by twelve to see how much you’ll owe in taxes each month.
  • Social Security and Medicare Taxes: According to the IRS, the federal withholding rates for FICA are:
          -6.2% for Social Security
    -1.45% for Medicare
  • Misc: Depending on your financial situation, you may have other deductions to consider when calculating your monthly take-home pay. Use previous paychecks to help you determine how much money will be withheld to account for 401k contributions, benefits, etc.

2. Identify fixed and variable expenses

Once you have a clear picture of how much money you’re actually working with each month, it’s time to figure out how you’re spending it…or how you should be spending it. There are two main types of expenditures you need to account for as you build your budget: fixed and variable expenses. The difference between the two is that fixed expenses tend to cost you the same amount each month while variable expenses…vary. 

Fixed expenses

Your fixed expenses like rent payment, groceries, transportation, and health care costs are likely to absorb a large chunk of your budget, which makes them all the more important to track as the months go by. 

To determine how much of your budget is going towards fixed expenses, start by creating a list of your regular expenditures. Here’s a list of common fixed expenses to help you get started:

  • Rent
  • Mortgage
  • Car payments
  • Student loans

Once you’ve built a complete list, calculate a monthly estimate for each one, so you know how much of your income should be dedicated to it. If you’re not sure how much something costs, review previous bills and credit card statements to see what you’ve spent in the past.

Variable expenses

Whether you belong to a gym, go on a weekly date, or make a purchase on a shopping app, make sure you account for these costs in your budget. As opposed to fixed expenses that stick to relatively the same cost each month, these miscellaneous items may change month over month. 

Some examples of variable budget expenses include:

  • Entertainment
  • Groceries
  • Dining out
  • Gas
  • Clothing
  • Dating
  • Ride-sharing
  • Utilities

Determining how much you spend on variable living expenses each month can be tricky since it may be rarely  consistent, but it’s important to get a close estimate so that you can determine whether you can maintain the same spending habits or if you need to cut back in certain areas. Use your monthly bank statements to help you estimate your variable expenses, and in turn, set limits for each category.

How to factor expenses into your budget

If you’re using one of our free budgeting templates, simply input the values of these fixed expenses into your budgeting spreadsheet to help plan out your financial strategy each month. In the Mint app, you can connect your bank account to easily identify recurring expenses, or enter in your own budget for fixed expenditures. 

3. Set savings and debt payoff goals

As you saw in step two, if you have student loans and credit card balances, you’ll want to attribute part of your monthly budget to paying them off. Each month, allocate a certain amount to these monthly payments. The sooner you pay off debts, the less interest you’ll pay overall, and the closer you are to meeting your greater financial goals.

When creating a personal budget, include these types of debts into your planning:

If you’re all caught up on your bills and want to want to stow away funds for retirement or save up for a new car, it’s helpful to establish concrete goals, then break them down into achievable bite-size chunks. Having trouble coming up with realistic, meaningful financial goals? Take a look at these short-term and long-term examples:

Short-term financial goals

Long-term financial goals

  • Establish a retirement budget to build a retirement account
  • Pay off your mortgage or student loans
  • Start your own business

If you’re using the Mint app, you can set up custom goals for your savings in the budgeting section. Simply add a budget, define a dollar amount, and monitor your progress.

4. Record your spending

You know that feeling when you’re checking out at the grocery store, the cashier announces your total, you swipe your card, and by the time you’re loading your grocery bags into your car, you realize you didn’t even register the total amount you paid. It’s a concerning, out of body experience—but we’ve all been there.

This is why tracking your spending is so important. It’s easy to become complacent about the amount of money you’re spending and end up with revolving debt ruling your finances.  Depending on the budgeting method you choose—budgeting app, pen and paper, or online budgeting tool—you can pick a way to record your spending that best suits your lifestyle.

Here are a few tips to make expense tracking easier and more efficient:

  • Ditch the Cash: Stick to card payments if you have trouble keeping tabs on how much money you spend each month. This way, you can refer to your online bank statements to easily monitor your spending.
  • Check Yourself Before You Wreck Yourself: Make it a point to analyze your spending habits on a weekly basis. Collect any receipts or statements you have and check to see if you’re on budget or if you need to reel in your spending for the rest of your budgeting cycle. Budgeting will help monitor your spending so you are able to keep living within your means.
  • Go Old-School: If you’d rather skip the technology and take a more tactile approach to budgeting, a pen and a checking book will do just fine. Just be sure to make a habit of recording your expenses as soon as you’ve swiped your card.
  • Try the New-School Way: If you can’t be bothered to whip out a pen and paper each time you check out at the register, automated expense tracking might be a better alternative. Using the Mint app, you can connect your bank account to effortlessly record your spending and monitor transaction trends.  

5. Track your budgeting progress, review, and revise

Creating a basic budget is a huge financial victory. It helps you ensure you can cover your expenses and reach for exciting milestones, like buying a house or paying off your student loans. As you continue to budget, make adjustments as you see fit. Your income, expenses or lifestyle might change, and it’s important to ensure your budget keeps working for you and your future.

Set up a budget schedule and make it a point to review your budget on a regular basis—each week, every month, or at least every quarter to see if any major changes, or milestones have taken place. Not only will this help you recognize and celebrate your successes, but it will also encourage you to reevaluate and tailor your strategy as needed. 

Budgeting Breakdown for Beginners

Now that you know how to make a budget, it’s time to discuss best practices and budgeting basics to ensure your budget works for your money and your lifestyle. 

How to Choose the Budgeting Style That Works for You

Here’s the thing about budgeting. There’s not really a one-size-fits-all approach that works for every individual. Depending on your spending habits, financial goals, lifestyle, and your relationship with money in general, one budgeting tactic might make more sense for you than another. Let’s take a look at a few budgeting methods you can try.

Keep tabs on transactions with the envelope method

The envelope system is a simple budgeting approach that involves spending with cash instead of plastic.

If you budget $100 for eating at restaurants, put that amount into an envelope. When the money’s gone, you have to wait until next month to eat out again.

If you budget $200 for groceries, put $200 in a “grocery” envelope. If you’re at the checkout line and the total comes to $203, you’ll need to put something back.

The envelope method helps you be more strict with your budget. The pockets of cash are a visual and tangible reminder of how much money you’re dedicating to each area of your life.

Follow the 50/30/20 rule

Financial experts recommend the 50/30/20 guideline as a basic financial strategy, especially for young professionals. You can also use the new 50 30 20 budget calculator to help create your new budget.

The rule says that you should allocate a 50%, 30%, and 20% of your income to the following categories:

  • Essentials: 50%
         -Rent/Mortgage
         -Utilities
         -Debt payments
         -Bills
         -Groceries
  • Personal Expenses: 30%
         -Entertainment
         -Dining out
         -Date night
         -Shopping for non-essential items
  • Savings: 20%
         –Emergency savings
         -Retirement account
         -Travel fund
         –Rainy day fund

50/30/20 Calculator

50/30/20 Budget Calculator
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Essentials$0.00
Wants$0.00
Savings$0.00
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Consider a zero-based budget

With the zero-based budget technique, each month begins and ends with zero dollars. When you build out your zero-based budget, every dollar has a purpose. Let’s take a look at a sample budget using the zero-based method. If you make $3,500 every month, attribute each dollar to an expense. You might put $1,750 toward living expenses, $700 toward paying off debt, and $1,050 toward personal expenses like going to the movies or saving for vacation. At the end of the month, your balance is zero, because every dollar is accounted for.

Keep in mind, the zero-base doesn’t mean you’re spending every dollar that you earn, but rather, that each one is allocated to a different category—savings account included!

Selecting a Budgeting Tool That Suits Your Lifestyle

As we mentioned before, the one-size-fits-all methodology is a no-go when it comes to personal budgeting. Your financial situation is completely unique to you whether we’re talking about your income, expenses, or your financial goals, so it only makes sense to tailor your budgeting strategy to your individual preferences.

Here are a few tips to help you find a budgeting tool that makes sense for you:

  • Read reviews, or ask around: Although money can be considered a taboo topic, that doesn’t mean you need to tip-toe around budgeting techniques in your relationship or with your friends. You probably trust their opinions more than anyone else, after all. See which tools they use and ask what they like and don’t like about their current budgeting method. 
  • Test it out: Before buying into any paid budgeting subscriptions, give the free trial a go. This way, you’ll be able to familiarize yourself with the features and decide if it’s a tool you’d continue using.
  • Consider compatibility: If you’d like to automate your expense tracking, make sure that the budgeting tool you want to use can be integrated with your bank and credit card issuers.
  • Use a template or tool tailored to your needs: Depending on your financial circumstances, you may need a simple budget, or one that’s specific to your income and expenses. Or perhaps you’ll need additional functionality like investment capability or the ability to make peer-to-peer transactions. According to a recent survey, 55% of Americans use a full-service banking app. As you select a budgeting tool, consider how you’ll use it and how the tool fits into your lifestyle and financial goals. Our budget templates include the following categories:

Common Budgeting Obstacles and Mistakes

Before you set sail on your journey towards better budgeting, it’s time to talk about some of the obstacles you may encounter on your way. Like most things in life (or the sea in this case), budgeting isn’t always clear-cut—there can be aspects that are difficult or ambiguous. Factoring in random, one-time expenses or calculating a part-time gig can complicate your budget, but trust us, your voyage can (and must) continue! Here are a few tips to ensure you have the most accurate budget—no matter the circumstance.

1. Estimating irregular income

If you’re a freelancer or work a side hustle, you likely have an irregular income that can be hard to predict. In these cases, it’s best to estimate a conservative (low) amount, so you don’t overspend. Review the past 3-6 months of income and watch for any patterns. Can you find an approximate hourly rate or weekly rate for what you bring in? If you’re new to a job, like being a waitress, ask a coworker how much they typically make in tips to help you forecast your monthly tip outs. Above all, do your best to create an income estimate—knowing you can tweak it along the way.

2. Paying for emergency expenses

Unfortunately, accidents and unexpected bills happen to everyone. From car troubles to job loss and medical expenses, emergencies can be expensive and having a backup emergency budget can help cut down expenses. An unexpected bill can throw off our budget, and set you back. If an incident does occur, try to factor the expense into your budget while paying your other bills. For instance, you may want to cut back on dining out for the month, or pick up an extra shift to help you cover a bill. If you can, build an emergency fund into your budget to safeguard your finances against future unexpected situations. 

3. Forgetting one-time expenses

Items like annual memberships, vacations, and gifts for family and friends are often forgotten when creating budgets. If you can, set aside a small amount of cash every month for these extra expenses. You can estimate the expected cost for the year and account for them in your monthly budget. For example, if you typically spend $300 on Christmas gifts, set aside an extra $25 every month to account for these added expenditures. By the time December comes, you’ll have the cash available to spend on gifts.

Key Takeaways: Budgeting 101

  • Creating a budget is really as simple as following these five steps:
    • Calculating your take-home pay
    • Estimating your expenses
    • Setting savings and debt payoff goals
    • Recording your spending
    • Tracking your progress
  • To find the right budgeting method and tools for you, consider compatibility, ask around, and try out different options
  • Avoid budgeting pitfalls by preparing for unexpected circumstances and tailoring your budgeting strategy as needed

Sign up for Mint to help you stick to your budget and goals

Let the Mint app do the heavy lifting for you. It can calculate your income, total your spending by category, and help you conquer your savings goals. Tracking expenses with the app is simple and accessible—no matter where you are. 

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Source: mint.intuit.com

Posted on October 29, 2021

How to Balance Saving for Retirement and Your Kids’ Education

Let’s face it: Setting aside adequate funding for the future is a long, hard slog. Particularly for younger families who are early- to mid-career and have a lot of competing financial items to cover. Between raising young kids, paying mortgage or rent, and the countless other items that come with daily living, it can be stressful and difficult to see how everything is ever going to come together. Let alone saving for future goals – such as a home, kids’ education funds and the big one: retirement. 

Truth is, we’re in an era where these pressures continue to increase. Education expenses seem to be heading to the moon. And the concept of an employer paying a retirement pension has been dwindling for decades. The burden has shifted to employees to fund their own retirements.

If you’re in this boat, consider these strategies that may help. I’ll start with saving for retirement.

The first decade of retirement savings builds your foundation

Let’s tackle the question of balancing saving for retirement and education with what we know today. Unlike your children’s education, your retirement can’t be financed with a loan. The thing you can control about saving for retirement is to start early in your life and remain disciplined in putting something away for the long term. I often advise people who are starting out in their careers, and it’s key for them to understand that the first 10 years of savings generally won’t feel like things are growing fast enough. What you’re essentially doing in that period is building a foundation: A meaningful amount of money that down the road should start to compound at a faster rate.

The more dollars you have in the foundation, the more they can generate with even slight increases in investment returns. Think of it this way – making 10% on $1,000 produces $100 of investment returns. At the end of the day, $100 may not last too long in retirement. However, if you can build a savings balance to $100,000 and get 10% returns, that amounts to $10,000. Now start to replicate that over time, and eventually those return dollars start to compound at a higher rate than your annual contributions.

The graphic below provides a good example of how compounding works. Compare the “Consistent” example with the “Late” results. Those 10 years of starting early are highly advantageous in terms of compounding.

A line graph shows how four different people fare whether contributing $200 per month consistently from age 25-65 (ending balance of $369,900), waiting to start contributing at age 35-65 (ending balance of $192,000) or contributing only from ages 25-35 (eA line graph shows how four different people fare whether contributing $200 per month consistently from age 25-65 (ending balance of $369,900), waiting to start contributing at age 35-65 (ending balance of $192,000) or contributing only from ages 25-35 (e

The gap between Consistent and Late carries a powerful message: Use those early career years to start putting money away to build up your foundation. Decide on an amount you can afford – and just start and stick to the plan. As your pay increases, you should reassess to determine if you can increase your contributions.

Contemporary studies indicate a need to save 15% of your income annually to obtain enough savings over a career to replace your salary in retirement. This is a high hurdle, but starting early and building your way up to the target over time is the important part.

 This saving and investing business is a slow, long-term process. But it’s a lot more effective than waiting until later in life when you won’t have as much time to allow your money to grow before you need to draw from it.

Education savings should play second fiddle

As I mentioned above, retirement isn’t something you can finance or borrow money to fund. From my experience, I believe retirement should take a higher priority over saving for your children’s college. I’m not saying you should ignore that future expense – but don’t put it ahead of creating a nest egg to support you when you can no longer work or choose not to. Ultimately, education can be financed if you don’t have the means to fully save for it as well as to cover all of life’s expenses and put away money for retirement.

Right now, we’re seeing massive student loans burdening young adults leaving college, and it just seems like this trend isn’t getting any better. I question how tuitions can inflate the way they have – especially over the last 20 years. Something will have to give eventually, but don’t bank on this while planning for your future!

 As with retirement, if you can start saving for education by putting aside something early and often, you likely will see the benefit after building the foundation. It takes time, and it is a marathon. The goal would be to determine an amount you can save from your income, focus on getting a larger portion into retirement savings, and then allocate some to education. You can also make use of bonuses and gifts to save into education as they come along.

I recognize that saving for both retirement and education can seem next to impossible. Most families face this same problem. However, starting to do something about it early in your career can lay a solid groundwork, which will ultimately provide greater compounding – along with significantly greater financial security in the decades to come.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Chair of Investment Committee/Senior Wealth Adviser, Halbert Hargrove

Brian Spinelli is based in Halbert Hargrove’s Orange County and Long Beach offices. His responsibilities encompass running the firm’s investment committee as well as advising individuals and institutions on their investment and wealth advisory needs. Brian was named to HH’s management team in 2012. He earned his Bachelor of Arts in Business Administration – Finance from Loyola Marymount University in 2002 and his MBA from LMU in 2005. He is a CERTIFIED FINANCIAL PLANNER™ professional.

Source: kiplinger.com

Posted on October 27, 2021

Thoughts Before Funding a 529 College Savings Plan

College costs have outpaced inflation. Looking back at the last decade, the 10-year historical rate of increase has been approximately 5% per year, according to The College Board. Luckily, there’s a tax-advantaged way to save for these growing college expenses: the 529 college savings plan.

529 basics

When it comes to saving for college, opening a regular savings account/custodial account for your child is an option, but you’d miss out on the benefits of a 529 plan, such as the tax-free growth on earnings if the funds are used for qualified college expenses. Deposits to a 529 plan up to $15,000 per individual per year ($30,000 for married couples filing jointly) will qualify for the annual gift tax exclusion (for 2021). You can also front-load your investment in a 529 plan with $75,000 ($150,000 if joint with your spouse) and use this toward your gift tax exemption for five years, providing there have been no other gifts to that child. This is something that is not possible for a regular savings/custodial account for your child (you would only be able to gift $30K jointly). By adding a large amount up front, you allow the lump sum to grow over a longer time horizon vs. making smaller contributions over time. Contributions to a 529 plan do not have to be reported on your federal tax return.

Contributions to a 529 plan are not tax deductible (although some states do offer tax benefits), but the earnings grow tax free and are not taxed if used to pay for education. Another advantage compared to a custodial account is control; the named beneficiary has no legal rights to the funds, so you can ensure the money will be used for education.

Also on the plus side, a 529 account owned by someone other than the parent (such as a grandparent) is not considered an asset for financial aid purposes. In addition, the value of a 529 account is removed from your taxable estate, yet you retain full control over the account.

How to choose a 529 plan?

Research the underlying expenses of the mutual funds and review the investment options available compared to other plans. The age-based models may be the easiest to manage, as the plan shifts to more conservative investments as the student gets closer to college age. You can choose any state plan no matter where you live, but if you reside in a state that provides tax breaks for using your state plan, you would likely want to start there. For example, New York residents get tax benefits for using their state plan. Keep in mind that you have the ability to move your 529 to another provider, but only one rollover is permitted per 12-month period.

How much to fund?

The amount to contribute to a 529 plan depends on several assumptions, such as whether you expect your child will attend a public college or a private college, the returns during the investment time horizon, and future college inflation. Funding goals vary widely depending on what you would like to achieve and the assumptions involved — and of course there is no right answer.

 If the beneficiary does not go to college, you can transfer the 529 plan to a sibling in the future or to another family member, such as a cousin or grandchild. If you don’t have any eligible family members, the worst-case scenario is that you would have to pay tax and a 10% penalty on the earnings to take the money out for another purpose. Withdrawals from a 529 plan that are not used for the beneficiary’s qualified education expenses are taxed and penalized (subject to a 10% federal penalty and taxed at the income tax rate of the person who receives the withdrawal). If the beneficiary gets a scholarship, then the penalty is waived.

Considerations if you have more than one child

If you have several children, it may make sense to fully fund the first plan for the oldest child, and if the funds are not used, they can be transferred to the next child in line. You probably want to avoid fully funding all the plans in the event one child does not end up going to college, gets a scholarship, or starts a business. Some schools and some trade schools/programs do not qualify for 529 funds (for example, if a grandchild wants to go to a specific acting or cooking school). You can find out if your school qualifies by using this link: http://www.savingforcollege.com/eligible_institutions/.

Avoiding tax penalties on 529 Plan funds – not all expenses are qualified

Avoid overfunding the 529 if possible, as “qualified education expenses” do not cover all expenses related to college. Qualified expenses include:

  • Tuition and fees.
  • On-campus room and board.
  • Books and supplies.
  • Computers and related equipment.

On the other hand, several costs related to college aren’t considered qualified expenses. These costs can easily add up, so it may make sense to save outside of a 529 plan to help cover them. Funds from a 529 plan cannot be used for:

  • The purchase of a car, fuel costs or public transportation costs to and from school. 
  • Any insurance (car, health etc.) cannot be paid with 529 funds either.
  • If your child is a member of a school club or involved in a sports activity, any related fees and costs are also not qualified.
  •  It might seem intuitive that, if you have a student loan, you can use funds from a 529 to pay off the balance, but this is also not permitted.

If your child is planning to live off-campus, in housing not owned or operated by the college, you are unable to claim expenses in excess of the school’s estimates for room and board for attendance. It is important to confirm room and board costs with the school’s financial aid office, in advance, so you know what to expect. Also, keep in mind that, in order for room and board to qualify, your child must be enrolled half time or more.

Finally, if your child is studying abroad, check with the school to find out if the study abroad program qualifies for 529 funds.

If you inadvertently use funds for the wrong expenses, you will end up being taxed on the earnings, as well as face a 10% penalty on that amount.  Although 529 plan accounting tends to operate on the honor system, as you have to track your own expenses, using funds for the wrong items could have consequences in the event of an IRS audit.

Paying for college is a large expense for many families. 529 plans are a tax-advantaged way to save for college, but they come with some complex rules and restrictions — so understanding how these accounts operate before investing could save you from incurring unexpected tax penalties in the future.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Senior Financial Adviser, Evensky & Katz/Foldes Financial Wealth Management

Roxanne Alexander is a senior financial adviser with Evensky & Katz/Foldes Financial handling client analysis on investments, insurance, annuities, college planning and developing investment policies. Prior to this, she was a senior vice president at Evensky & Katz working with both individual and institutional clients. She has a bachelor’s in accounting and business management from the University of the West Indies, she received an MBA at the University of Miami in finance and investments.

Source: kiplinger.com

Posted on September 26, 2021

Make the Final Months of Student Loan Relief Really Pay Off

Four months and counting: That’s how long those with federal student loans have until all the pandemic-related reprieves on payments officially come to an end on Jan. 31, 2022. Until then, take advantage of all the strategies available to you to put yourself in the best possible financial position.

The coronavirus relief bill, known as the CARES Act, was signed into law in March of 2020. It suspended loan payments, set interest rates at 0% and stopped collections on defaulted student loans. Its protections were extended multiple times, with the last extension coming on Aug. 6. As a result, for nearly two years, federal student loan borrowers were not required to make payments and saw no interest accrue during the relief period.

No action is required by qualified borrowers, as the loan payment suspension or forbearance will automatically continue through the end of January. Does that mean that borrowers must resume paying on Feb. 1? Not necessarily.

Loan servicers should be contacting borrowers before the extension ends to confirm when to resume payments. However, if you have student loans and you don’t hear anything from your lender, you should contact them yourself. Don’t assume that if you are not contacted that you aren’t responsible for resuming payments, as this could put you at risk of accumulating late fees and perhaps even defaulting on your loans. Remember, it’s the borrower’s responsibility to pay their loans on time, whether or not they receive communication from their lender.

In the meantime, use your final months of loan forbearance wisely. Here are some ideas on how best to move forward until payments must restart:

What You Can Do with the Extra Money – 5 Tips

1. Increase Your Savings

If you don’t have an emergency fund or have depleted it during the pandemic, consider using the extra money normally dedicated to your student loan payments to rebuild it. The general rule of thumb is to save somewhere between three to six months’ worth of take-home pay. However, in light of the pandemic, some may want to increase that to six to nine months or even more. For example, if you’re self-employed, the sole breadwinner of your household, or don’t have job stability or security, you may want to aim for a savings of up to one year’s worth of your monthly take-home pay.

2. Go on a Debt Diet

Consider paying down high-interest rate debt, such as credit cards, before student loan payments resume. This strategy is known as the “Debt Avalanche Method.” Another strategy is to begin clearing off the debts with the smallest balance first, known as the “Debt Snowball Method.” Whichever strategy you use, aim to pay off as much as you can, because doing so can benefit you greatly in the long run. 

3. Invest in Your Future

If you have ample emergency savings and have paid off high-interest rate debt, consider investing the additional money until repayments must resume. Begin with ramping up your retirement contributions, and set automatic contributions if you haven’t already. If you have, consider increasing your contributions by 2% (or more) of your income, and set it up so that it will automatically increase the same amount the following year. If your retirement savings are on track, then consider investing for other goals that you may have, such as buying a home, starting a business or simply building your wealth.

For example, you can begin by opening a brokerage account and start with a recurring deposit of $50 (or more) a month. Investing the extra money helps it grow over time, thanks to the magic of compounding interest, which potentially enables you to earn money on top of the money you earn.

4. Factor Your New Loan Payments into Your Budget

Review your budget and student loan repayment plan. Many of you have experienced quite a few changes during the pandemic, such as a job loss or a reduction (or increase) in income. So, now is a good time to reassess your repayment strategy, meaning making sure you can afford the payments when they resume, and if not, determining what repayment options may be available to you. A financial adviser, certified student loan expert or your student loan servicer can provide assistance and direction.

5. Continue Making Student Loan Payments to Reduce Your Principal

Whether or not you should continue paying on your student loans depends on a number of factors. If you are likely to qualify for Public Student Loan Forgiveness (PSLF) in the future, you will not benefit from paying on your loans during the suspension. However, if you have private loans or other debts, such as high-interest rate debt mentioned above, you may want to prioritize paying off these first. On the other hand, if you are unlikely to qualify for PSLF, then you first need to determine if you have unpaid accrued interest and how much. If you have accrued interest, any payments made will go toward paying that off first, before they go toward your principal.

If you don’t have accrued interest and you’ve implemented all of the above recommendations (emergency savings, paying off debt, investing), then you may want to consider using the extra money to aggressively pay down your principal while there is a zero percent interest rate. 

Forbearance Advice for New or Current College Students

What impact does the suspended loan payments have on new or continuing college students? First, let’s begin by explaining the two types of loans that are provided by the federal government and are strictly for students – the Direct Subsidized Loan and the Direct Unsubsidized Loan. A key difference with the subsidized loan is that the government pays the interest while the student is in school and during the six-month grace and deferment periods. Eligibility for this loan is based on financial need.

Conversely, with unsubsidized loans, the student is responsible for all of the interest that accrues; however, they can defer payment until six months after graduation. Also, unlike the subsidized loans, eligibility is not based on financial need. There is a yearly maximum amount that students could be offered. For college freshman, the maximum is $5,500 if they were awarded both the Direct Subsidized and Unsubsidized loans. Over a five-year period, students can borrow a maximum of $31,000.

Pre-pandemic, both loans were typically deferred until graduation. But remember, interest was still accruing on unsubsidized loans. Now, with the current payment suspension, the interest accrual on the unsubsidized loan is halted and therefore treated like the subsidized loan. This is, therefore, beneficial for current college students and those starting school this fall.

Thus, here’s a thought for parents who under normal circumstances wouldn’t take out loans: They may now want to consider taking them, at least temporarily. Why? They can take advantage of the forbearance by keeping funds that they plan to use toward college expenses in an interest-bearing account. When the moratorium on student loan payments end, they could pay off the loan and keep the interest.

Advice for Incoming and Future College Students

What does all this mean for students entering college in 2022 and beyond? In April, President Biden unveiled his $1.8 trillion “American Families Plan,” and while it did not include loan forgiveness, it would provide other essential forms of support to families in need, if the legislation is passed. One form of support entails providing free tuition for community college students. Given that many students are opting to go to a community college due to the rising cost of higher education and the uncertainties of the pandemic, such a benefit can make college more affordable for many families. The relief package would also increase the maximum Federal Pell Grant by $1,400 (increasing the average Pell Grant by roughly $900), which would be beneficial for low and moderate-income families.

However, for higher income families, these benefits won’t reduce the burden of paying for college, which makes planning ahead all the more important. As the cost of a college education continues to rise, it likely means that student loan debt will too. The average student graduates from college with nearly $40,000 in student loan debt. So, this means that no matter what the federal government decides to do, parents need to be in the driver’s seat. They MUST lead the college selection process (with the child as co-pilot) because they have the most to lose. What do I mean by “lose”? It means picking the wrong school, overpaying or underestimating total costs, including how many years it actually takes to graduate and ultimately earn the degree. As a result, many parents resort to tapping into their home equity, taking out large second mortgages and/or diverting retirement funds to pay for college and therefore have to work longer than they had hoped or planned.

To avoid being in this situation, financial planners, particularly those who specialize in college planning, can provide guidance and direction in this effort too. Independent Educational Consultants may also be a great resource.

Finally, What about Those Who Currently Have Private Student Loans?

Unfortunately, the CARES Act extension until Jan. 31, 2022, only applies to federal student loans, such as Federal Student Subsidized Loans, Federal Student Unsubsidized Loans, Federal Parent PLUS Loans and Graduate PLUS Loans. However, many private lenders are offering relief similar to the temporary forbearance, but interest will likely still accrue. Borrowers with private loans can start by checking their servicer’s website for information on COVID-19 relief or contact them to inquire about forbearance or rate reduction programs.

More Updates are Expected

Stay tuned. The Federal Student Aid site provides the latest updates about the coronavirus student loan relief and its impact on students, borrowers and parents. For more information on student loan forgiveness legislation, visit the U.S. Department of Education’s website. 

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Financial Adviser, Urban Wealth Management

Derenda King is a CERTIFIED FINANCIAL PLANNER™ professional, Certified Student Loan Professional (CSLP®) and financial adviser with Urban Wealth Management. She is also the owner of Collegiate Financial Coach, LLC, which provides financial coaching to families with college-bound students who need assistance with developing a college funding plan and to individuals seeking strategies for repaying their student loan debt. Prior to becoming an adviser, Derenda worked in higher education, and she is still an educator at heart. She provides comprehensive, holistic financial planning services, with an added focus on late-stage college planning, and is passionate about educating, empowering and equipping individuals with the knowledge to make more informed decisions about their money.

Source: kiplinger.com

Posted on May 11, 2021

Investing in a College Town Rental Market: Ann Arbor, Michigan

College towns are attractive markets for investors in rental properties for several reasons. Students and faculty create large and dependable markets of tenants. Local economies dominated by academic institutions are remarkably stable compared to those based on manufacturing or agriculture. Larger universities create hundreds of non-academic jobs in research centers, medical facilities, and new companies spun off by technologies developed locally.

Ann Arbor, Michigan, home to the main campus of the University of Michigan, is an excellent example of a campus-based economy that is much larger than its facility and student body. One out of three local jobs are in educational service, and an additional one out of ten are in technical, professional and scientific services. At $39,235, Ann Arbor’s average per capita income and its median family income of $102,615 are 20% to 30% higher than national averages.

WalletHub ranked Ann Arbor, the nation’s fifth-best college town and the best small city college town in 2020 based on academic, social, and economic opportunities for students. It also ranked Ann Arbor, the nation’s “most educated city in 2020,” outranking San Jose, California, and Washington, D.C. It also placed first in educational attainment and quality of education and attainment gap.

Read: 5 Reasons Why You Should Still Buy an Investment Property

college university student leaving librarycollege university student leaving library

Affordability is Under Fire

Popularity can have a downside, and Ann Arbor is experiencing the price of success in rising housing costs and decreasing affordability, especially in Washtenaw County as a whole.

As of February 2020, the average monthly rent in Ann Arbor was $1,580 for an 882-square-foot apartment, a 3% increase over 2019, higher than the national median for a comparable apartment ($1,468) and considerably higher than nearby Detroit ($1,069) or East Lansing ($1,294), home of Michigan State University. Half of Ann Arbor tenants spend 30% or more of their household income on rent. HUD defines cost-burdened families as those “who pay more than 30% of their income for housing” and “may have difficulty affording necessities such as food, clothing, transportation, and medical care.”

“Ann Arbor – and its central driver, the University of Michigan – is a magnet for highly educated households with upward mobility and significant disposable income. With some exceptions, Ypsilanti (City and Township) and their challenge of being overloaded by a disproportionate number of at-risk households and homes with negative equity – is where the most affordable options exist,” stated a 2015 Washtenaw County housing study.

“Ann Arbor will become more costly, and less affordable, especially to non-student renters in the short run and eventually, to aspiring buyers as well. The driver for higher costs is a combination of high livability and quality of life, great public schools, resulting in sustained demand by households with discretionary income, and resulting expectations of stable and continually rising property values,” the study concluded.

Read: Investing in a College Town Rental Property: Charlottesville, VA

The Ann Arbor Rental Market is Vast and Profitable

In many ways, Ann Arbor is a great rental market. The massive student body drives demand. About 70% of the University of Michigan’s 46,000 students live off-campus and the current cap rate for Washtenaw County apartment buildings is a respectable 7.6%. (The capitalization rate is the ratio of rentals’ net operating income to property value. Low cap rates imply lower risk, and higher CAP rates indicate higher risk.)

Living off-campus is so popular; the university maintains web pages listing rentals and providing advice and information for off-campus renters. This summer initiated a “virtual housing fair” to help students find rentals for the 2020-2021 school year.

group of young college students hanging out at homegroup of young college students hanging out at home

Homes.com lists 1,235 properties in Ann Arbor, with a median home value of $355,600, about 17% above the national median of $304,100 in July. Of the total homes in Ann Arbor listed on Homes.com, 60% are for sale, and 34% are rentals.

Read: What to Know Before You Rent to College Students

Though several new high-rise apartment buildings recently opened and more are under construction, single-family rentals still dominate the market. Homes.com lists more than 200 single family homes for rent in Ann Arbor. Smaller rental households are a result of the above-average presence of single-family rentals relative to apartments. The average household size for Ann Arbor rentals is 2.2 people, compared to 2.3 for Michigan and 2.5 for the nation as a whole.

COVID-19 and Ann Arbor, Michigan

COVID-19 delayed the University of Michigan’s plans for the fall semester but did not cancel fall apartment rentals. The university’s plans include both in-person and remote classes, a new academic calendar, and the elimination of breaks and changes centered around preventing the spread of the coronavirus.

Despite the pandemic, Ann Arbor is still one of the best college town markets in the nation. As in most markets, acquisition is a challenge. Property prices in Ann Arbor are rising, and the smaller, less expensive homes that make ideal single-family rentals are few and far between.  Otherwise, conditions are good for single-family rental owners and will improve as the nation returns to health.


Website | See more posts by this author

Steve Cook is the editor of the Down Payment Report and provides public relations consulting services to leading companies and non-profits in residential real estate and housing finance. He has been vice president of public affairs for the National Association of Realtors, senior vice president of Edelman Worldwide and press secretary to two members of Congress.

Source: homes.com

Posted on April 12, 2021

How to Pay Off $130,000 in Parent PLUS Loans for Just $33,000

Millennials are not the only ones saddled with the obligation to pay back massive amounts of student loans. Many parents take out loans in their names to help their children pay for college, and in many cases, these loans are getting in their way of achieving their goals, like retiring. 

Under the federal student loan system, parents can take out Parent PLUS loans for their dependent undergraduate students. One of the major differences between Parent PLUS loans and the loans that the students take out is that there are fewer repayment options available for Parent PLUS borrowers. Parent PLUS loans are only eligible for the Standard Repayment Plan, the Graduated Repayment Plan and the Extended Repayment Plan.

There are other strategies for managing Parent PLUS debt, however. When consolidated into a Direct Consolidation Loan, Parent PLUS loans can become eligible for the Income-Contingent Repayment (ICR) Plan, in which borrowers pay 20% of their discretionary income for up to 25 years.

Currently, ICR is the only income-driven repayment plan that consolidated loans repaying Parent PLUS loans are eligible for. However, when a parent borrower consolidates two Direct Consolidation Loans together, the parent can potentially qualify for an even better repayment plan and further reduce their monthly payments. 

Nate, the high school math teacher

Let’s take a look at Nate, age 55, as an example to see how a parent can manage Parent PLUS loans and still retire as hoped.

Nate is a public school teacher who makes $60,000 a year and just got remarried to Nancy, who is also a teacher. Nate took out $130,000 of Direct Parent PLUS loans with an average interest rate of 6% to help Jack and Jill, his two kids from a previous marriage, attend their dream colleges. Nate does not want Nancy to be responsible for these loans if anything happens to him, and he is also worried that he would not be able to retire in 10 years as he had planned!

If Nate tried to pay off his entire loan balance in 10 years under the federal standard repayment plan, his monthly payment would be $1,443. Even if he refinanced privately at today’s historically low rates, his payments would still be around $1,200, which is too much for Nate to handle every month. Also, since Nate’s federal loans are in his name only, they could be discharged if Nate dies or gets permanently disabled. Therefore, it is a good idea to keep these loans in the federal system so that Nancy would not be responsible for them. 

In a case like this, when it is difficult for a federal borrower to afford monthly payments on a standard repayment plan, it’s a good idea to see if loan forgiveness using one of the Income-Driven Repayment plans is an option. In Nate’s case, his Parent PLUS loans can become eligible for the Income-Contingent Repayment (ICR) plan if he consolidates them into one or more Direct Consolidation Loans. If Nate enrolls in ICR, he would be required to pay 20% of his discretionary income, or $709 a month. Compared to the standard 10-year plan, Nate can cut his monthly burden in half by consolidating and enrolling in ICR!

But that’s not all …

Double Consolidation

For Nate, there is another strategy worth pursuing called a double consolidation. This strategy takes at least three consolidations over several months and works in the following way:

Let’s say that Nate has 16 federal loans (one for each semester of Jack and Jill’s respective colleges). If Nate consolidates eight of his loans, he ends up with a Direct Consolidation Loan #1. If he consolidates his eight remaining loans, he ends up with Direct Consolidation Loan #2.  When he consolidates the Direct Consolidation Loans #1 and #2, he ends up with a single Direct Consolidation Loan #3. 

Since Direct Consolidation Loan #3 repays Direct Consolidation Loans #1 and 2, it is no longer subject to the rule restricting consolidated loans repaying Parent PLUS loans to only be eligible for ICR. Direct Consolidation Loan #3 could be eligible for some other Income-Driven Repayment plans, including IBR, PAYE or REPAYE, in which Nate would pay 10% or 15% of his discretionary income, rather than 20%.

Reducing Nate’s monthly payments

For example, if Nate qualifies for PAYE and he and Nancy file their taxes using the Married Filing Separately (MFS) status, only Nate’s $60,000 income is used to calculate his monthly payment. His monthly payment now would be reduced to $282. If he had chosen REPAYE, he would have to include Nancy’s annual income of $60,000 for the monthly payment calculation after marriage — regardless of how they file their taxes — so his payment would have been $782.

Double consolidation can be quite an arduous process, but Nate decides to do it to reduce his monthly payment from $1,443 down to $282. 

How Parent PLUS borrowers can qualify for forgiveness

Since Nate is a public school teacher, he would qualify for Public Service Loan Forgiveness (PSLF), and after making 120 qualifying payments, he would get his remaining loan balance forgiven tax-free. 

Since Nate is pursuing forgiveness, there is one more important thing he can do to further reduce his monthly payments. Nate can contribute more to his employer’s retirement plan. If Nate contributed $500 a month into his 403(b) plan, the amount of taxable annual income used to calculate his monthly payment is reduced, which further reduces his monthly payments to $232. 

Summarizing Nate’s options in dollars and cents 

  1. With the standard 10-year repayment plan, Nate would have to pay $1,443.26 every month for 10 years, for a total of $173,191. 
  2. With a consolidation, enrolling in ICR, filing taxes using the Married Filing Separately status and Public Service Loan Forgiveness, he would start with $709 monthly payments and pay a total of around $99,000 in 10 years.*
  3. With double consolidation, enrolling in PAYE, filing taxes using the Married Filing Separately status and Public Service Loan Forgiveness, his monthly payment starts at $282, and his total for 10 years would be around $40,000.
  4. For maximum savings: With double consolidation, enrolling in PAYE, filing taxes using the Married Filing Separately status, Public Service Loan Forgiveness and making $500 monthly contributions to his employer retirement account for 10 years, Nate’s monthly payment starts at $232, and his total payment would be around $32,500.      He would have contributed $60,000 to his 403(b) account in 10 years, which could have grown to about $86,000 with a 7% annual return. Comparing this option with the first option, we can project that Nate pays about $140,000 less in total, plus he could potentially grow his retirement savings by about $86,000.

As you can see, there are options and strategies available for parent borrowers of federal student loans. Some of the concepts applied in these strategies may work for student loans held by the students themselves as well.

An important thing to remember if you are an older borrower of federal student loans is that paying back the entire loan balance might not be the only option you have. In particular, if you qualify for an Income-Driven Repayment plan and are close to retirement, you can kill two birds with one stone by contributing as much as you can to your retirement account. Also, since federal student loans are dischargeable at death, it can be a strategic move to minimize your payments as much as possible and get them discharged at your death.

Also, loan consolidation can be beneficial as it was in this example, but if you had made qualifying payments toward loan forgiveness prior to the consolidation, you would lose all of your progress you had made toward forgiveness!

As always, every situation is unique, so if you are not sure what to do with your student loans, contact a professional with expertise in student loans.

*Note: The projections in Options 2 through 4 assume that, among other factors such as Nate’s PSLF-qualifying employment status and family size staying the same, Nate’s income grows 3% annually, which increases his monthly payment amount each year. Individual circumstances can significantly change results.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Associate Planner, Insight Financial Strategists

Saki Kurose is a Certified Student Loan Professional (CSLP®) and a candidate for the CFP® certification.  As an associate planner at Insight Financial Strategists, she enjoys helping clients through their financial challenges. Saki is particularly passionate about working with clients with student loans to find the best repayment strategy that aligns with their goals.

Source: kiplinger.com

Posted on March 31, 2021

MintFamily with Beth Kobliner: 3 Ways Your Kids Will Redefine the American Dream

A friend’s 20-something son shocked his parents with his post-graduation plans: He was moving to Southeast Asia to sell selfie sticks.

Millennials in a nutshell, #amiright?

But who can blame them for taking non-traditional paths, given the poor financial hand they’ve been dealt: record levels of college debt, uncertain job prospects, stagnant wages, and more. It’s why one in three Millennials is deeply dissatisfied with their financial situation, according to a much-quoted new study from George Washington University and PwC.

Findings from a recent Harvard survey cut even deeper: half of Millennials say the American Dream is dead. Yep, that cornerstone of post-war America—the house, the car, the upwardly mobile career track—is about as relevant to them as black & white TV. To parents raised on the mythology of the American Dream, that’s grim news.

But the situation may not be as dire as it appears.

As they’ve done with everything from communications to careers, Millennials are redefining what it means to lead a “better life” (something parents see as key to the American Dream, according to a 2015 60 Minutes/Vanity Fair poll). This new paradigm is rooted in the experiences of people who came of age after the financial crisis of 2008, and reflects how they see the world. It offers a flexible lifestyle (one that some might see as transient) and a reworking of the traditional measures of success.

Here are three ways that our kids will make their own American Dream—and thrive.

1.  They’ll rethink what college means—and how to pay for it.

Two-thirds of parents say the American Dream includes sending their kids to college, according to a September poll from the youth media company Fusion. These moms and dads are right to think this, as college grads earn about $1 million more over their lifetimes.

For Millennials, cost and career aspirations are informing this major life decision more than ever (call it pragmatism if you want). Gone are the days of selecting a school based on its bucolic campus or dominant football program. Kids (and parents) want more value—and less debt.

That’s why it’s so critical to start the college cost conversation early—like 9th grade-early. Want an incentive? A start-up called Raise.me allows high schoolers—as early as freshman year—to earn “micro-scholarships” from over 100 colleges. Got an A in chemistry? Won the lacrosse playoffs? Volunteered at your local animal shelter? Each awesome achievement can earn your kid $500 to over $1,000 from various colleges. Even “mayor” of Millennials Mark Zuckerberg backs it: Facebook is one of Raise.me’s main supporters.

Best way to avoid the college cost guessing game? Fill out the FAFSA (Free Application for Federal Student Aid)—the key to scholarships, grants, work-study, and low-rate federal loans. The form is notoriously long and complicated, but it’s getting better! Starting this year, you can access the FAFSA on October 1, 2016 (up from January 1, 2017). Why the new, early start? It means you’ll be able to auto-fill the form for the 2017-18 school year using your 2015 tax return data. (More details here.)

Parents of kids who excel in hands-on environments can encourage them to consider the growing trend of apprenticeships (a traditionally European idea that’s catching on here in the U.S.), particularly programs offered in tandem with a community college degree.

2.  They’ll understand that owning your own “home sweet home” is only sweet when you can afford it.

In 1986 (back when I was graduating from college!), 76% of young people saw owning a home as essential to the American Dream. Today that’s down to 59%, according to the Fusion poll.

That means your kid is more likely to bunk with you—or rent—than take on a mortgage she can’t afford (so don’t turn her bedroom into a home office just yet). If she does move in with you, make sure she uses this time as an opportunity to save! (And work out any financial details in advance with this helpful guide from eHow.com.)

Renting has traditionally gotten a bad rap, but it lets your kid explore—new towns, new jobs, new people!—without being stuck in one place. Take our selfie-stick seller: his Southeast Asia stint lasted less than a year before he was back in the states and settling into a new city and new gig. Like his fellow Millennials, he’ll probably rent for several years. Buying may not even cross his mind until his early 30s. A Zillow study shows the average first-time homebuyer is now 33, up from 29 in the 1970s. Of course, you’ll want to talk to your kid about the realities of owning a home, including how to sock away a chunk of money for a down payment once she’s ready.

3.  They’ll value happiness and independence over a huge paycheck.

The entrepreneurial goals of Millennials can sometimes seem a little, er, lofty (like the selfie stick plan that didn’t exactly take off), but thankfully, many are starting to pace themselves.

A study from Upwork, a company that helps businesses find freelance workers, showed that 62% (mostly Millennial) freelancers planned to work a full-time job and moonlight on the side for two years before quitting to follow their dreams. Two years may not be a magic number (a specific financial goal would be safer), but at least they’re earning—and learning—prior to taking the leap.

Today’s young people aren’t all work and no play, either. Millennials’ drive for success, salary, and even entrepreneurial goals pales in comparison to their desire to spend time with family and friends, which they rank as “one of the most important things” in their lives, according to the Harvard survey.

The takeaway? We’re raising a generation that demands independence, flexibility, and a true work/life balance. Perhaps that’s the new American Dream.

Sounds like something we can all believe in.

How do you define the American Dream for your kids? Tell me on Twitter using #NewAmericanDream.

© 2016 Beth Kobliner, All Rights Reserved

BethKobliner

Beth Kobliner is the author of the New York Times bestseller Get a Financial Life, and is currently writing a new book, Make Your Kid a Money Genius (Even If You’re Not), to be published by Simon & Schuster. Visit her at bethkobliner.com, follow her on Twitter, and like her on Facebook.

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Posted on March 9, 2021

4 Reasons Paying for College With a Credit Card Is a Terrible Idea

Get 5% cash back!  

Earn 10,000 airline miles!

Credit card offers and promotions are everywhere. All those rewards are tempting and can get you thinking of ways to get the most out of your credit card.

With the high cost of college tuition, you might be wondering if you can use a credit card to pay for school and get rewards. But before handing over your card, you should know there are significant risks involved.

4 Issues to Consider Before Using a Credit Card to Pay for College

It seems like a great idea: If you earn 1% cash back on all purchases and use your card to pay a $10,000 tuition bill, you’ll get $100 in rewards. However, the reality isn’t that simple.

Dr. Robert Johnson, president and CEO of the American College of Financial Services, believes there’s few, if any, advantages to using a credit card for your education.

“I think it’s dangerous for students to use credit cards for routine expenses,” he said.

That’s because credit cards are significantly different from other forms of debt, such as student loans. Relying on a credit card to pay for your tuition and fees can cause problems later on. Watch out for these four issues.

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1. Sky-High Interest Rates

Some student loans have an interest rate as low as 4.45%. In late 2017, credit cards had an average interest rate of 13.16%, according to the Federal Reserve. If you have poor credit or don’t have an established credit history, you could face interest rates as high as 25.00% for a credit card. That difference in interest rate is significant.

“Credit cards are riskier because the interest rates are substantially higher and because they’re so easy to use,” said Dr. Johnson. “One must make a deliberate and purposeful decision to take out a student loan. It’s so easy for someone to simply take out a credit card and incur high-interest-rate debt without thinking through the ramifications.”

Over time, your credit-card balance can balloon. You could end up paying far more than you originally borrowed.

“Credit-card debt is the highest-interest-rate debt and is very difficult to extinguish if the balances get large,” said Dr. Johnson.

If you think you can avoid paying high interest fees by paying off the debt quickly, make sure you have a concrete repayment plan. The average cardholder has a balance of over $4,000. With college costs added on top of that, you could end up paying thousands more. Once you get into credit-card debt, it can be tough digging yourself out.

2. Fees Might Negate the Rewards

You might be able to earn rewards for charging your tuition, but you could end up paying more than the reward is worth in fees.

Schools charge an average 2.62% processing fee, according to a 2016 CreditCards.com survey. That means a $10,000 charge to pay for school would add $262 to your bill. That’s more than double what you’d earn in cash-back rewards and would make college even more expensive.

3. Fewer Repayment Options

Beyond high interest rates, credit cards have more limited repayment options compared to federal and private student loans.

With student loans, you typically have a grace period. You don’t have to make payments on your loans until six months after graduation. If you experience financial hardship and have federal student loans, you can postpone payments or even qualify for a reduced payment with an income-driven repayment plan. With a credit card, you don’t have those benefits.

If you use a credit card to pay for college, you’ll have to start making payments right away, even while you’re still in school. If you lose your job or face an unexpected emergency, you still have to keep up with your payments or risk wrecking your credit history. You can quickly end up over your head.

“Credit-card debt limits their flexibility once they graduate, as their earnings go toward trying to extinguish debt,” said Dr. Johnson.

4. Effect on Your Credit Score

Your credit history can have a significant impact on your life. A poor credit score can impact you in many ways, from applying for an apartment to job hunting.

Your FICO credit score is determined by a range of factors. One of the most important is your credit utilization. Accounting for 30% of your score, your credit utilization is how much of your available credit you use. The more you use, the more it hurts your credit report. For example, if you have a $10,000 limit, charging $2,000 will leave you with a better score than charging $9,000.

The problem with using a credit card to pay for college is that it raises your credit utilization. A single semester can cost thousands, eating up a huge chunk of your available credit. If you can’t afford to pay off the card right away and carry a balance, it can take years to get rid of it, lowering your credit score.

If you need to buy a car or want to purchase a home, a poor credit score can cause you to pay higher interest rates or not be approved at all.

Be Smart About Paying for School

If you’re going to school but don’t qualify for federal loans, or if you’ve exhausted all of the financial aid the government offers, there are safer options than using a credit card to pay for tuition.

Private student loans are more expensive than federal loans. But both have much lower rates than credit cards. Many loan servicers also offer important benefits, such as a grace period after graduation and alternative payment options. Student loans can be a much better tool for paying for school compared to your Visa.

If you’re concerned about your credit, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get a free credit score updated every 14 days.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

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Source: credit.com

Posted on February 9, 2021

6 Ways I Saved Money On College Costs

Check out this list of ways to save money on college costs. This is a great list!

Check out this list of ways to save money on college costs. This is a great list!How much does college cost? This is a question many wonder. There’s rarely a week that goes by where I don’t receive an email from a student or parents of a student who are looking for ways to cut college costs. That’s why today I want to talk about college costs and how you can create a college budget that works so that you can save money in college.

College is very expensive – there is no doubt about that.

However, I want you to know that it IS possible to get a valuable college degree on a budget!

The average public university is over $20,000 per year and the average private university totals over $45,000 once you account for tuition, room and board, fees, textbooks, living expenses and more.

Even with how expensive college can possibly be, there are many ways to cut college expenses and create a college budget so that you can control rising college costs.

Continue reading below to read about the many different ways I cut college costs. While I was not perfect and still racked up student loan debt, I did earn three college degrees on a reasonable budget.

Related articles:

1. Take classes at a community college to cut college costs.

Whether you are in college already or you haven’t started yet, taking classes at a community college can be a great way to save money.

Earning credits at a community college usually costs just a small fraction of what it would cost at a 4-year college, so you may find yourself being able to save thousands of dollars each semester.

There is a myth out there that your degree is worth less if you go to a community college. That is NOT TRUE at all. When you finally earn your 4-year degree, your degree will only say where you graduated from and it won’t even mention the community college credits at all. So this myth makes no sense because your degree looks the exact same as everyone else’s’ who you went to college with. You might as well save money because it won’t make much of a difference.

I only took classes at a community college during one summer semester where I earned 12 credits, and I still regret not taking more. I probably could have saved around $20,000 by taking more classes at my local community college.

Also, you are most likely just taking general credits at the community college, so it’s not like you would be missing much by taking classes there instead of a college that has a better reputation for the major you are seeking.

If you do decide to go to a community college, always make sure that the 4-year college you plan on attending afterwards will transfer all of the credits. It’s an easy step to take so do not forget! You should do this before you sign up and pay for any classes as well as to make sure that ALL of the classes will transfer succesfully.

2. Take advantage of high school classes to lower your college budget.

Many high schools allow you to take college classes to earn both college and high school credits at the same time.

This is something I highly recommend you look into if you are still in high school, as it saves time and is one of the best ways to save money on college costs.

When I was in my senior year in high school, nearly all of my classes were dual enrollment courses where I was earning college and high school credit at the same time. I took AP classes and classes that earned me direct college credit from nearby private universities. I left high school with around 14-18 credit hours (I can’t remember the exact amount). This way I knocked out a whole semester of college. I could’ve taken more, but I decided to take early release from high school and worked 30-40 hours a week as well.

3. Take all the credits you can to stay within your college budget.

At many universities, you pay a flat fee. So whether you take 12 credit hours or 18 credit hours, you are paying nearly the exact same price.

For this reason, I always recommend that a student take as many classes as they can if they are going to a college that charges a flat fee tuition.

If you think you can still earn good grades and do whatever else you do on the side, definitely get full use of the college tuition you are paying for!

4. Apply for scholarships to lower your college costs.

Before you start your semester, you should always look into scholarships, grants, FAFSA, and more. You usually have to turn in any paperwork around spring time for the following semester, so I highly recommend doing this right now if you are going to college in the fall.

Another myth will be busted right now. Many believe that all scholarships are impossible to have or it means you have to win a contest. That is just a myth.

I received around $16,000 a year in scholarships to the private university I attended. That helped pay for a majority of my college tuition. The scholarships were easy for me to get as they were all just because I earned good grades in high school and scored well on tests. I received scholarships to all of the other colleges I applied for as well just for good grades, so I know they can be found as long as you do well in high school!

There are other ways to find scholarships as well. You can receive scholarships from private organizations, companies in your town, and more. Do a simple Google search and I am sure you will find many free websites that list out possible scholarships for you to apply to.

Tip: Many forget that you usually have to turn in a separate financial aid form directly to your college. Don’t forget to do this by the deadline each year!

5. Search for cheaper textbooks to lower your college budget.

Students usually spend anywhere from around $300 to $1,000 on textbooks each semester, depending on the amount of classes they are taking and their major.

For me, many of my classes required more than one book and each book was usually around $200 brand new. This means if I were to buy all of my college textbooks brand new, I probably would have had to spend over $1,000 each semester.

I saved a decent amount of money on college textbooks by renting them and finding them used. Renting them was nice because I just had to pay one fee and didn’t ever have to worry about what to do with the textbook after the class was done, as I only had to return them. There was no worrying about the book being worthless if a new edition came out, which was nice! Buying books used was nice occasionally as well just because sometimes I could make my money back.

I recommend Campus Book Rentals if you are looking for textbook rentals. Their rentals are affordable and they make getting the textbooks you need easy.

Read: How To Save Money On Textbooks + Campus Book Rentals Review

6. Skip the high price of living on campus to cut your college budget.

To save more money, I decided to live on my own. I didn’t have the option of living at home after high school and living on campus would have cost me a ton of money.

Instead, I found a very cheap rental house (the house was VERY small and probably could have been considered a tiny home) and was able to somewhat easily commute to work and college from it. I probably saved around $500 a month by living on my own instead of on campus, and I learned a lot by living on my own at a young age as well.

If you can live at home though and want to save money, I highly recommend it if it’s an option for you. You can save thousands of dollars a semester by doing this!

I understand that some are against this because it may impact your “college experience,” but I think most people would be fine not living on campus, especially if it’s not in the budget. You could probably save around $40,000 over the years on your degree by living at home.

How did you cut college costs and control your college budget? How much student loan debt did you have when you graduated?

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Source: makingsenseofcents.com

Posted on February 8, 2021

How I Paid Off My $40,000 Student Loan Debt In Less Than One Year

Are you interested in learning how to pay off student loans? Are you looking for the best way to pay off student loans?

Today, I want to talk about how I paid off my student loans, tips to pay off student loans, and answer many of your top questions about how student loans work.best way to pay off student loans

best way to pay off student loans

I graduated college with $40,000 student loan debt, and I paid off my student loans in just 7 months. It’s been several years since I paid them off, but I still receive so many questions about this topic.

There are approximately 45 million student loan borrowers in the U.S. with a total of $1.6 trillion in student loan debt. Yes, that’s trillion.

With so much student loan debt, it’s not surprising that I receive so many questions about how to pay off student loans. Student loans can stay with you for years, and they can affect almost every financial decision you make until they are paid off. 

Student loans can prevent you from saving for retirement, make it harder to pay off other types of debt, find the job of your dreams, and so on.

Living with student loan debt can cause a lot of stress, and that’s one of the reasons I wanted to pay mine off as quickly as possible. I didn’t want to live with that debt on my shoulders any more. 

In this article, you will learn how I paid off my student loans, and while it did take a lot of hard work, it was well worth it.

Paying off my student loans completely changed my life, and it’s something I’ll never regret.

Paying off student loans can lead to many benefits, such as:

  • Feeling less stress because you no longer have a huge debt hanging over you.
  • Having the ability to use that money towards other goals in life, such as saving for retirement or buying a home.
  • Gaining the option to pursue other goals in life, such as traveling more or looking for a better job.

I know these benefits are real because paying off my student loans is one of the best decisions that I’ve ever made.

No, it wasn’t easy to pay them off so quickly, but it was definitely worth it. No longer having those monthly payments hanging over my head is a big relief, and it allowed me to eventually leave my day job and travel full-time.

If you’re reading this article, then you’re probably interested in paying off your debt as well.

Below, I’m going to answer some common questions that I’ve received over the years about paying off student loan debt, the steps I took to pay off my student loans in 7 months, along with other questions you may have as well.

 

How I paid off my student loans.

You will want to read through the steps below if you are asking, “How can I pay off my student loans fast?” 

Paying off your student loans so quickly is not easy, but it doesn’t mean it’s impossible. You have to find creative ways to make money, understand exactly how your student loans work, reduce your expenses as much as possible, and make a plan to pay off your loans.

Below are the 8 steps I took to pay off my loans, and then I will answer many of the questions I receive about student loans so you can understand the best way to approach your pay off. As you can see, there are many different student loan repayment methods.

1. Understanding my student loans

First off, I did everything I could to better understand my student loans.

I always think it’s best that you understand your debt so you can find the best strategies to pay it off. Understanding your loans helps you pay off student loans faster and save money over the course of your pay off.

Here’s what you should understand about how student loans work:

  • Your interest rate. Some student loans have fixed interest rates, whereas others have variable rates. Fixed rates stay the same, and variable rates go up or down based on the market. You’ll want to figure out the interest rates on each of your loans because that may impact the student loan repayment plan you decide on. For example, you might choose to pay off your highest interest rates student loans first so you can pay less money over time.
  • What a monthly payment means. Many people believe that a monthly payment is all that you have to pay, are allowed to pay, or that by paying just the minimum monthly payment you won’t owe any interest. Those three things are so incorrect! Even if you pay the minimum monthly payment, you will most likely still owe interest charges (unless your interest rate is 0% – but that is very unlikely with student loans).
  • Student loan reimbursements. Some employers will give you money to put towards your student loans, but you should always do your research before assuming it’s just that simple. Some employers require that you work for them for a certain amount of time, that you have great grades, good attendance, and they might have other requirements as well. There are many employers out there who will pay your student loans back (fully or partially), so definitely look into this option.
  • Auto-payment plans. For most student loans, you can probably autopay them and receive a discount. Always look into this as you may be able to lower your interest rate by 0.25% on each of your student loans.

Related: How Do Student Loans Work?

 

2. I added up my total student loan debt

This is probably the most important step. I know that many of you will think I am crazy, but this is crucial to seeing success.

I recommend that you take time to add up the total amount of student loans that you have.

When you total your student loans, do not just estimate how much debt you have.

You should actually pull up each loan and tally everything, down to the penny. By doing so, you will have a much more realistic view of exactly how much you’re dealing with.

Plus, the average person has no idea how much student loan debt they have! Usually, they have far more than they originally thought.

 

3. I received an easy interest rate deduction

If you automatically pay your student loans each month or consolidate them, then sometimes you can get an interest rate reduction.

With Sallie Mae, I believe the reduction is 0.25%.

That may not seem significant, but it is something! Remember, every little bit counts when it comes to having a good student loan repayment plan.

Related: I recommend that you check out Personal Capital (a free service) if you are interested in gaining control of your financial situation. Personal Capital allows you to aggregate your financial accounts so that you can easily see your financial situation, your cash flow, detailed graphs, and more. You can also connect accounts, such as your mortgage, bank accounts, credit card accounts, investment accounts, retirement accounts, and more. Plus, it’s FREE.

 

4. I found ways to make extra money

Making extra money is something I did a lot of back when I had student loans, and it was the big reason for why I was able to pay off $40,000 in student loans in just 7 months.

And, I believe that the fastest way to pay off student loans is to find ways to make extra money.

Making extra money can allow you to pay off your students loans quickly because there is no limit to how much money you can make. When you make money in addition to what you make at your current job, you have that much extra money to put towards your debt repayments.

Every extra bit of money I made went towards paying off my student loans, and I would usually make a payment as soon as the extra money from my side hustles hit my bank account. I did this so I was never tempted to spend that money. 

Here are a few of the things I did to make extra money: started this blog and made money from it, sold items on eBay, mystery shopped, had roommates in my house, took paid online surveys, wrote for other websites, and much more.

If you want to learn how to pay off student loans fast, then I definitely recommend that you find ways to make extra money. Here are various ideas you can try:

  • Start a blog. Blogging is how I make a living and just a few years ago I never thought it would be possible. You can create your own blog here with my easy-to-use tutorial. You can start your blog for as low as $2.75 per month, plus you get a free domain if you sign-up through my tutorial.
  • Start a business. There are many business ideas that you could start in order to make extra money. You can clean houses, walk dogs, house sit, work as a freelancer, and much more.
  • Sell your stuff. There are many ways to make money selling things. We all have extra items lying around that can be sold, or you can even search for items that can be bought and resold for a profit.
  • Rent an extra room in your home. If you have extra space in your house, then you may want to rent it out. Learn more at What You Need To Know About Renting A Room In Your House.
  • Answer surveys. Survey companies I recommend include Branded Surveys, American Consumer Opinion, Swagbucks, Survey Junkie, Pinecone Research, Opinion Outpost, Prize Rebel. They’re free to join and free to use! You get paid to answer surveys and to test products.
  • Find a part-time job. There are many part-time jobs that you may be able to find. You can find a job on sites such as Snagajob, Craigslist (yes, I’ve found a legitimate job through there before), and so on.
  • Sell crafts. If you’re looking for creative ways to pay off student loans, this one is for you!

Learn more at 80+ Best Side Job Ideas To Make Extra Money.

5. I sought out ways to reduce my expenses

The next step is to pay off student loans faster is to cut your budget. Even though you may have a budget, you should go through it line by line and see what you really do not need to be spending money on.

There’s probably something in your budget you can cut.

Until you look everything over,, you may not realize how much money you are wasting on things you don’t need. And, it’s never too late to start trimming your budget and start putting that money towards important things like paying off student loans!

Even if all you can cut is $100 each month, that is better than nothing. That’s $1,200 a year right there!

Some expenses you may be able to cut include:

  • Lower your cell phone bill. Instead of paying the $150 or more that you may currently spend on your cell phone bill, there are companies out there like Republic Wireless that offer cell phone service starting at $15. YES, I SAID $15! If you use my Republic Wireless affiliate link, you can change your life and start saving thousands of dollars a year on your cell phone service. If you are interested in hearing more, I created a full review on Republic Wireless. I’ve been using them for over a year and they are great.
  • Sign up for a website like Rakuten where you can earn CASH BACK for spending how you normally would online. The service is free too! Plus, when you sign up through my link, you also receive a free $10 cash back!
  • Pay bills on time. This way you can avoid late fees.
  • Shop around for insurance. This includes health insurance, car insurance, life insurance, home insurance, and so on. Insurance pricing can vary significantly from one company to the next. The last time we were shopping for car insurance, we found that our old company wanted something like $205 to insure one car each month, whereas the company we switched to charged $50 a month for the same exact coverage.
  • Save money on food. I joined $5 Meal Plan in order to help me eat at home more and cut my food spending. It’s only $5 a month (the first four weeks are free) and they send meal plans straight to you along with the exact shopping list you need in order to create the meals. Each meal costs around $2 or less per person.
  • Fuel savings. Combine your car trips, drive more efficiently, get a fuel efficient car, etc.
  • Trade in your car for a cheaper one. How much is your monthly car payment, if you have one? This can be an easy way to cut your budget drastically.
  • Live in a cheaper home. I’m not saying that you need to live in a box, but if you live in a McMansion, then you may want to think about a smaller home. This way you can save money on utility bills and your mortgage payment.
  • Learn to have more frugal fun. We don’t spend anywhere near the same amount of money on entertainment as we used to. There are plenty of ways to have frugal fun.

 

6. I created a plan to pay off my student loans

After you have completed the steps above, you’ll want to put it all together and create a plan.

Without a plan, you would just be all over the place, making it difficult to reach your goal of learning how to pay off student loans.

You should create a plan that details the steps you need in order to pay off your student loans, what will happen as you reach each step, when and how you will track your progress, and more.

Here’s what my student loan pay off plan included:

  • Setting up autopay on my student loans so I never missed a payment. I had autopay set up to pay the minimum payments on each of my student loans, and then I made targeted payments (more on this in the next point) with any extra money.
  • Paying off the student loans with the highest interest rates first. All of my extra money went towards my student loans with the highest interest rate, and once that loan was paid off, I put the money I was paying towards that loan towards the loan with the next highest interest rate until all of my loans were paid off. This helped me save money on interest charges
  • Put every bit of extra money towards my student loans. Like I said earlier, any time I made extra money, I immediately made a payment on my student loan debt, even if it was something small like $20. This meant all of my extra money went towards student loans, and I was never tempted to spend it on something else.
  • I checked my student loan balances a couple of times a month. Seeing my debt go down helped me stay motivated.  

This plan took a lot of hard work and dedication, but it’s exactly how I paid my student loans off so quickly.

7. I stayed motivated with my student loan payment plan

For me, motivation was crucial for paying off my student loans. Luckily, I received great satisfaction each time I put even just a little bit towards my student loans.

But, staying motivated can be hard. Motivation is important because it can help you keep your eye on your goal to pay off student loans even when you want to quit, which can happen often during a big debt repayment.

Yes, student loan repayment can seem very stressful when you think about it. Many people owe thousands and thousands of dollars in student loans. It may feel like you are trying to scale a mountain.

However, think about how good life will be once all of your student loan debt is gone.

Please try to not let your student loans get you down. Think positively and attack that debt so that you can pay it off fast!

Trust me, once you finally pay off those expensive student loans, you’ll be much happier.

Some ways to stay motivated while you pay off student loans includes:

  • Remember the reasons for why you are wanting to pay off your student loan debt.
  • Make your goal visual with a debt thermometer.
  • Set smaller goals in between. For example: If your overall goal is to pay off $24,000 in debt in two years, then you might want to aim for $1,000 in debt payoff each month. This seems much more attainable than the $24,000 number, and this can help you stay motivated while still challenging yourself at the same time.
  • Keep track of your progress.
  • Think about how you will feel in the future.

As you can see, there are many ways to stay motivated.

 

8. I paid more than the minimum student loan payment

The key to speeding up your student loan repayment process is that you will need to pay more than the minimum each month.

Most student loans, especially many federal student loans, are set up for a 10 to 20-year repayment plan. But if you want to pay them off faster, then you must pay more than the minimum payment each month.

Not only does paying more than the minimum help you pay off your loans faster, it helps you save money on interest charges. For some people, that can make the difference of thousands of dollars saved over the course of their repayment.

Paying more than the minimum may sound hard, but it really doesn’t have to be. Whatever extra you can afford, you should think about putting it towards your student loans. You may be able to shave years and thousands of dollars off your student loans!

Common questions about the best way to pay off student loans

In this section, I am going to answer common questions that I’ve received about the best way to pay off student loans.

Is it smart to pay off student loans quickly? What is the smartest way to pay student loans?

There are many benefits to paying off your student loans early. For me, I hated the feeling of having all of that debt hanging over my head. No longer feeling that stress was the benefit.

I recommend sitting down and thinking about how paying off student loans quickly could positively change your life too.

It might mean you are eventually able to leave a job you hate, finally buy a house, travel more, retire early, and so on.

How does paying back student loans work?

Most student loans have a 6 month grace period where you don’t have to make your first payment until 6 months after you graduate or if you go to school less than half-time.

But, this all depends on the student loan, so you will want to make sure that you read the terms on your loan.

Even though you may not have to pay back your student loans right away, that doesn’t mean you can’t.

You can start paying back your student loans early, and you can pay more than the minimum monthly payment as well.

Your student loan servicer, whether federal or private student loan lender, will send you information to set up your repayment plan some time in that 6 month period. If you are still in school, I recommend starting to think about how you will pay off your loans.

Federal student loan borrowers have a few different options for paying back their loans, including income-based repayment plans, graduated plans, and so on. You should look into each option to see what makes the most sense for you.

No matter which option you choose, remember that you can always make more than the minimum payment, and that’s what you should do if you want to pay off student loans quickly.

 

Is it better to save or pay off student loans? Should I pay off my student loans?

A big question when paying off debt is if that should be your sole focus. Should you still be trying to save money while paying off your debt?

Or, should all of the extra money you have be going towards your student loan debt?

You may be wondering things such as:

  • Should I pay off debt or emergency fund first, as in set some money aside for emergencies?
  • Should I pay off debt or save up for a downpayment?
  • Can I pay off debt AND save money at the same time?

And so on and so on.

I paid off my student loans quickly, which meant that I focused entirely on my student loans and completely skipped any other financial goals. It doesn’t mean that’s the best decision for everyone, though.

I know several people who paid off their student loans quickly like me and didn’t have any money saved while they were doing so, and a couple of them wish they had an emergency fund. 

It all depends on your situation. If you have kids, health problems, a house, people who rely on you financially, etc., then you may want to have at least an emergency fund.

I recommend reading Pay Off Debt Or Save Money – Is One Better For You? to learn more about this subject.

What other ways can you pay off student loan debt?

If you are looking for other ways to pay off student loan debt, there are plenty of other options.

These may include:

  • Asking your employer to help pay off your student loans
  • Refinancing your student loans
  • Seeking out student loan forgiveness

Below, I will be talking about these options in more detail.

 

See if your employer will reimburse your student loan debt.

Some companies offer their employees student loan reimbursements. I know of someone who received a $2 bonus for each hour that she worked to put towards her student loans.

$2 may not seem like a lot, but if you work full-time, then that’s over $300 a month (or $3,600 a year!). $300 a month for student loans is a good amount! 

And, because it’s free money, it can all be put towards paying off your student loans quickly.

If you are looking for a new job, this may be something you will want to ask about.

 

Should you refinance your student loans?

By refinancing your student loans, you may qualify for better repayment terms, a lower interest rate, and more. This is great because it may help you pay off your student loans quicker.

This can be a good option if you borrowed private student loans and your credit score is better now than when you originally took out your student loans.

The positives of refinancing student loans include:

  • One monthly payment to simplify your finances
  • Lower monthly payments
  • Lower interest rates, and more

Companies, such as Credible, allow you to refinance your student loans. With refinancing, the average person can save thousands of dollars on their loan, and that’s incredible! You can save a lot of money with student loan refinancing, such as with Credible, especially if you have high interest federal or private loans.

Credible’s platform is similar to the way Expedia works for finding flights – with Credible, you simply search the available rates to find the best student loan rate for you. There is no service fee, no origination fee, and no prepayment penalty if you end up paying off your student loans faster.

To use Credible, it takes less than 10 minutes and just follow these steps:

  1. Fill out a quick simple form (2 mins) – It only takes one form to see the many different lender options.
  2. Choose an option you like (2 mins) – On Credible, you can easily compare the different lenders all in one place.
  3. Provide your loan details (3 mins) – After providing more information about yourself, it takes one business day to receive your finalized offer.

Before refinancing a federal student loan, though, you will want to think about different federal benefits that you may be giving up. You may give up income-based repayment plans, loan forgiveness for those who have certain public service jobs (including jobs at public schools, the military, Peace Corps, and more). By refinancing your federal student loans, you may be giving up any future options for these loan forgiveness programs.

However, keep in mind that by refinancing your student loans, you may receive lower monthly payments, lower interest rates, and more. This may help you pay off your debt much faster.

For me, I didn’t qualify for student loan forgiveness, so refinancing would have definitely helped me if I knew about it back then.

 

How does student loan forgiveness work?

Teachers, nurses, and government employees may be eligible for student loan forgiveness through a program called Public Service Loan Forgiveness (PSLF). It is only available for Direct Federal Student Loans, including Direct Plus and Direct Consolidation Loans.

To qualify, you must be working full-time, make 10 years of on-time monthly payments under a qualifying repayment program, which includes:

  • Income-Based Repayment Plan (IBR)
  • Income-Contingent Repayment Plan (ICR)
  • Pay As You Earn (PAYE)
  • Revised Pay As You Earn (REPAYE)

You will have to certify your income and repayment plan every year, and PSLF does not apply to private student loans.

PSLF is one of the most confusing aspects of how student loans work, so I highly recommend that you contact your student loan servicer as soon as possible. They will explain exactly how to move forward with forgiveness.

Are there grants to pay off student loans?

Yes, there are grants that help people pay off student loans, but most student loan borrowers will not qualify for them.

The kinds of grants available are for health care workers, veterinarians, military personnel and surviving family members, and lawyers (specifically state defenders and prosecutors). 

I recommend searching online to learn more about these grants if you fall into one of those categories above.

How long will it take to pay off student loans?

The time it takes to pay off your student loans depends on the kind of repayment plan you are enrolled in. There are 10 and 20-year repayment plans for federal student loans, or you can pay them off early.

As I’ve said, paying your student loans off early can be a very good thing, and you can possibly save thousands of dollars over your loan repayment period.

 

What do I do when my student loan is paid off?

After my student loan debt was paid off, we celebrated!

Paying off my student loans in full was an amazing feeling for me.

I can’t remember exactly what we did, but I think it involved a nice dinner, haha. Paying off my student loans opened up other doors for me – I felt more comfortable pursuing my side business full-time, as I no longer had a huge monthly debt payment hanging over my head.

For you, you may decide to do other things such as:

  • Pay off any other debt that you have
  • Fully fund your emergency fund
  • Save for retirement

And so on!

I hope you enjoyed today’s blog post on the various ways to pay off student loans, along with the common questions that I have answered.

If you have any questions about how to pay off student loan debt, please leave them as a comment below or send me an email.

Do you want to learn how to pay off your student loans? What other tips do you have on the best way to pay off student loans?

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