Category Archives: Student Loans

How I’m Paying My Student Loans While in College

Lauren Davidson is a Junior at the University of Pennsylvania. She is majoring in Finance and is working to set herself up for success in repaying her student loan debt after graduation.

Yes, I hear you right now. You are screaming over there because I said those two words – “student loans.” Okay, okay, calm down. I will use the word as sparingly as I can as I tell you my story.

Just like you, I used to be afraid of those two words and when anyone would bring the topic up I would just head for the door and that was the end of it. I knew at some point I needed to get a grip and stop being afraid of the word.

I am a college student at the University of Pennsylvania. I already have student loan debt and, unfortunately, way more of it than most of my peers. I used to be ashamed of it, but now I use it as a stepping stone to help others and propel myself forward.

To be fully open, I already owe $32,000 in student loan debt and I still am just beginning my Junior year. Ugh! It stinks, it really does. But, I have owned the mistakes I made when borrowing and now I want to share with you just how I am paying down my student loans and what I plan to do in the future to pave my pathway to success.

I hope you find this information useful and you are able to apply it to your own situation, if you do have student loans or student loan debt. Ready to learn more about me and my plans? Okay, great!

I Make Interest Only Payments While in School

Did you know you can choose to make interest payments while you are in school or you can opt out and allow the interest to accrue while you go to school?

It is true and this is one of the toughest decisions that I had to face, but I knew which option was the best once I sat down and evaluated them.

I chose to make my interest payments while I am in school. Why? Because by making interest payments while in school, I am preventing my (already huge) amount of debt from growing more than it has to.

Okay, you are probably not even sure what I am talking about right now, especially if this is your first time in college. If you do NOT make your interest payments while in school, it will accrue and be added to your principal balance once you graduate.

Therefore, if you owe, for example, $50,000 and you accrued a total interest amount of $6,000, your total loan balance will be $56,000 and this is the amount that the interest grows on. In short, if you don’t pay your accrued interest, it will be added to your total balance, and your next interest charge will be even higher.

I Apply ALL of My Money to My Student Loans

The next thing that I do is I apply ALL of my money to my student loans. Any money that I receive, no matter the reason, it goes straight to my student loan provider.

You may be wondering just how I live right now, right? I actually found a cheap apartment that is pretty far off-campus compared to my other options. I do have to pay rent, but it isn’t nearly as much as some of my peers.

Another tactic I use is that whenever I have a birthday or gift-giving holiday approaching, I ask for the money anyone was going to give me to be sent to pay off my student loans. I apply any bonuses from work, my tax returns, and all forms of additional money to my student loans.

You may be thinking, well, you are not even out of college yet and you do not have to make payments yet. Yes, this is true, but when you pay your student loans off as I am, you do not end up owing as much and you do not get charged interest on the original amount, but the new amount that is generated after you make payments.

I Participate in the Work Study Program to Reduce the Amount I Need to Borrow

I do participate in the work study program and this means I do not have to depend on student loans any more. I can borrow the bare minimum needed and continue to work on paying them off.

The work-study program allows me to be self-sufficient and it provides me with a job where I can earn a wage to help support myself while in school. I do work at the school, specifically in the library, but I love it. I meet new students, have fun, and it does not even feel like work.

Have you considered the work study program? If not, you definitely should!

I Have a Ridiculously Tight Budget That I Stick To

Okay, I mentioned that I still live at home and I do. I am fortunate enough not to have to pay rent, but I do have to pay for my food and half of the other bills in the home. Bummer, yes, but hey, at least I am not out there trying to do it on my own. I would really be up a creek without a paddle then!

I have a budget I stick to and it includes only spending $50 per week on groceries and then about $100 in the split bill payments. The rest of the money goes straight to my loans. I may keep a few bucks here and there, but I do not keep much money for myself. Yes, it is difficult, but I know it will pay off in the end.

I Am Building Credit to Set Myself Up for Success in the Future

Many of my college buddies are afraid to use a credit card. They immediately associate credit cards with debt, as silly as it sounds. The truth is, credit cards are a great way to set yourself up for financial success in the future. As long as you make payments on time, are smart with your credit utilization, and don’t take out too many credit cards in a short period of time, you can start building up your credit score.

I personally am especially in building my credit so I can refinance my student loans after graduation—assuming I can land a decent paying job! Because I don’t plan on going into a public service field (that would make me eligible for forgiveness) or am too worried about the income-driven repayment plans, I can save tons of money by refinancing with a private lender. After I refinance, I will receive a lower interest rate and can even change the repayment length of my loan to something that fits my personal situation.

Have You Thought about Your Plans for the Future?

I know my finances are a bit tight right now, but I would rather it be this way than to head out into the real world and live paycheck-to-paycheck. If you work hard at it, you can pay off your student loan debt just like I am working to do.

Would You Sell A Percentage Of Your Future Income?

I was recently turned on to a site, Upstart.com, that allows people to “raise money in exchange for a small share of their income over 5 or 10 years.”

I love this idea for some people and the idea is really interesting, though I think there may be some downsides to consider as an investor.

Who Upstart Can Help

While many of the upstarts (people looking for others to invest in them) have a business idea they want funding for, there are some upstarts with very different reasons and needs for an upfront payment in exchange for giving up a percentage of their future income (and total payments are capped at a certain amount).

Some would like to pay off student loan debt or pay for their education, while others are looking to train for the Olympics or other athletic endeavors.

How Upstart Works

Each applicant (or upstart, as they are called on the site) creates a profile, and Upstart verifies his or her identity, credentials, and credit status. Then, Upstart assigns each applicant a fybdubg rate, the amount an applicant can raise for each 1% of income share, either for a 5 year or 10 year term.

Upstarts get to choose how much money they want to raise, up to 7% of their future income, with a minimum of $10,000 raised from backers.

Upstart attempts to target an 8% annual return to backers, though clearly there can be a large variance as some are more successful than others.

The Rules For Backers

Backers can invest in increments of $100, and upstarts have the right to choose whether to accept any particular backer. Upstarts provide updates to their backers about their progress, and backers can be involved in the success of the upstarts by giving advice and making introductions. Everyone is involved in the success of the upstart, and everyone is on the same team trying to make money!

Backers must be American accredited investors, which means a minimum of $1 million net worth (excluding primary residence) or a minimum of $200,000 annual income in each of the past two years ($300,000 if married). This clearly limits backers to a small subset of people.

The Future of Upstart

I love the idea of certain individuals getting funding now in return for a small percentage of their income later. If they don’t make much in the future, it doesn’t cost them a lot, and if they are very successful, they share some of that success with those who helped them. And for some of those entrepreneurs who want to start a business, they can get extremely valuable advice and connections, which may be worth even more than the original investment amount.

For backers, I don’t see the same benefits. An 8% target isn’t that impressive (I’ve done better with Lending Club the last few years), and on top of that there will be work to do if you want to get involved in the business the upstarts are doing. This may be best used as a fun way to try to make the world better and help young people who want to grow their business ventures, but as purely an investment platform, I’m not sure it’s the best idea.

I’m sure there will be many success stories, but I’m equally as concerned about those who try to scam the system, similar to what occasionally happens with Lending Club.

What do you think of Upstart? Would you use it as either an upstart or a backer?

High School Students Can’t Make Financial Decisions About College

At the beginning of my senior year of high school, we had to fill out a questionnaire for the college adviser. It asked if I wanted to stay close to home or if I wanted to move to the opposite coast, what my interests were, what strengths and weaknesses I had, and o yeah, if finances were going to factor into my decision about where to go to college.

Maryland Terrapin
University of Maryland by enygma

Like many high school seniors, I said that finances were not going to be a major part of the decision making process.

My College Decision Making Process

This is what my decision making process looked like while I was filling out that questionnaire:

  • My parents had provided for all my education expenses up until that point
  • I had some money saved up for college
  • It was more important to go to a good school than to worry about how much it would cost

I had no idea how much my parents had set aside for me, and I had absolutely no concept of money at the time. So why should I care how much college is going to cost?

The Problem With Letting High School Students Make Financial Decisions

At age 17, the difference between $25,000 in student loan debt and $100,000 in student loan debt is really small. Many teenagers look at the options like this:

  • In either case, it’s a lot of money that will get paid back eventually.
  • With a college education, it won’t take long after graduating to start paying it off.
  • Every else goes through the same thing, so I am not any different.

Why are these kids being put in charge of a potentially life-changing decision without being given all the tools to make the best choice?

How High School Students Decide Where To Go To College

Most high school students think more about the social and academic aspects of college than the financial aspects. Some schools are better when it comes to specific disciplines and for the most part, kids are looking at what their lives will be like during college instead of thinking about what their lives will be like after it.

I went off to the University of Maryland (Go Terps!), and at some point during my junior year, my father told me how much debt I was probably going to graduate with. OK, it was a fact of life that I was going to have to deal with. If he had said $70,000, my reaction would have been the same.

Parents Need To Help Make The Decisions

I’m glad my parents were looking out for me and didn’t allow me to take on more than a reasonable amount of student loan debt. I had absolutely no idea what I was doing, and if there hadn’t been any money set aside for my college education, I am confident that I still would have decided to go to the University of Maryland. I consider myself very fortunate that I had help during the entire process.

It’s not fair to make high school students decide between two enormous amount of debt. Parents need to be extremely involved and not only lay out the realities of what life after school will be like, but guide their children because they are much better suited to look at the whole picture.

How much student loan debt did you have when leaving college? As a high school senior, were you able to make an informed financial decision about where to go to school?