I will be the first admit that paying off student loans isn’t fun. In reality, it actually sucks saying you took $70,000 of your hard-earned dollars just to pay off some college debt.
Just think what you could have done with $70,000 in one year. I know personally, I would have saved some money, took a trip around the world, tried my best to have a few kids, or maybe just bet it all on black in Vegas.
All jokes aside, even as non-glamorous as paying off student loans may be, it is rewarding to know that by putting some short term things on hold you can really make a serious dent in those pesky student loans.
That is exactly how my wife and I were able to pay off $70,000 worth of student loans in 2018. We got our lives streamlined so that paying off our student loan debt from a combined 13 years of school would be priority #1.
But… it wasn’t a walk in the park! For starters, we used quite a few strategies and approaches to pay off student loans in 2018 including:
- Refinancing Student Loans
- Using Cash Windfall Payments Towards Student Loans
- HELOC Student Loan Payments
- Delaying on vacations, trips and entertainment
- Side Hustles to help with student loans
How to pay off student loans in 6 steps.
I will tell you this first and foremost. Paying off an average of $5,800 per month towards student loans (monthly average) is no easy task. Hard work, commitment, and making some short term sacrifices are all involved… as cliche as all those might sound.
It is also very abnormal to make that amount of student loan payments in one year. I don’t live under a rock and I realize that a large majority of Americans don’t bring home $5,800 per month, let alone have that much to pay off student loan debt each month.
Then again, most adult Americans don’t have a combined $300,000+ in student loans. Knowing what we know now, my route of getting a Master’s and becoming a teacher was worth the price. However, my wife on the other hand – going to school for 8 years to be a physical therapist – well let’s just say hindsight is 20/20
Either way, after paying off $57,000 in student loans in 2017, this year we successfully paid off just over $70,000 in student loan principal. Which I aim to detail below. However, I like to point out we used 4 different strategies to ultimately pay off $70,000 in principal debt. These numbers don’t reflect interest paid, in fact in March alone we made a one time $6,100 payment.
Nonetheless, here is a breakdown of all the student loans we paid in 2018 and six ways that helped us pay off $70,000 in student loan principal!
1. Monthly Student Loan Payments
In total, we made $7,231 in monthly minimums towards our student loan balance. Naturally, not all of this went towards the principal. Our minimums were $615 and $620 this year on the two different My Great Lakes student loan accounts.
However, with one the loans being paid ahead and then refinanced, the payment for that loan was in deferment for 6 of the 12 months. The other loan would go into deferment in late October for the same reason – paid ahead.
The more money we can use at our discretion the better, so paying ahead and not having to make monthly minimums allows us (our personal choice) to take the freed-up cash and apply it towards our monthly HELOC which I elaborate on below.
Currently, the last remaining loan with My Great Lakes is paid ahead and sitting pretty. Being this paid ahead allowed us to finally refinance our loans too!
2. Refinanced Student Loans
If you have read any of my blog posts on refinancing student loans you will quickly pick up on the fact that I am actually for of an opponent of refinancing student loans until the time is right.
When you should refinance your student loans has more to do with timing, cash flow and loan balance then it does with just saving 2 points and $100 on your payment.
After paying my student loan off in the fall of 2016, Lauren had two student loans over $125,000 each comprised of multiple student loan balances. The buzzword we seemed to keep hearing was to refinance our student loans.
After doing our research and thoroughly analyzing every angle, refinancing our student loans wasn't the best move in 2016 or 2017. Had we refinanced our student loans we would have lost IBR (Income-based repayments) and our payments would have actually increased, even with a lower interest rate.
Higher payments would have reduced our liquidity, or ability to pay off specific student loans, which has been our big advantage. All that said, once we dropped one of Lauren’s major grad school loans to a balance of $78,0000 refinancing finally made sense.
We were able to find a rate below 5% using Penfed and the payment was exactly the same from when the loan was still publicly funded but we were saving 2.5% in interest.
Refinancing our student loans made sense and didn’t impact our cash flow, which is our main priority because we leverage a HELOC to pay off student loans.
Considering Refinancing Student Loans? Checkout LendKey!
3. HELOC Monthly Payments towards Student Loans
If this is your first time reading Money Life Wax this next part is going to give you a 30,000 foot aerial view of how we use a unique approach to pay off student loans. We essentially use a home equity line of credit to make huge principal payments.
This was a concept we read up on and learned a lot about before using it, I would recommend starting here to learn more.
That being said, a HELOC is very liquefiable. We can pull and paydown funds daily if needed which gives us tons of flexibility when we pay off our student loans. Conventional wisdom typically says just make extra payments.
While that definitely doesn’t hurt, in our situation we need to get ahead of interest. By making massive student loan principal payments using a HELOC then rapidly decreasing the HELOC back down to wash rinse repeat, we went from paying $17,000 in interest to $8,000ish in 2018.
We paid a total of $57,000 towards our HELOC in 2018. A majority of that went towards principal and we made two $40,000 payments in 2018, one in March and one in December. To fully understand, here is a step by step process of implementing a HELOC.
4. Using Cash Windfall Payments towards Student Loan
What the heck is a cash windfall payment? Yeah, that was my response when I first heard the term.
Essentially when you get a large amount of cash, maybe from a wedding, settlement, inheritance, or in our case a real-estate sale, you take a bulk of the cash and make a one-time large payment.
According to Student Loan Hero, the best example of a cash windfall would actually be your tax return,
“Even if you don’t get an inheritance or something similar, many taxpayers get a cash windfall once a year in the form of a tax refund.”
Instead of blowing your tax return on a new sectional and a trip to Cabo, consider paying off your student loans. Attack the principal balance and be strategic with which loan you chose to pay.
That is exactly what we were able to do, paying off $24,000 in principal towards our student loans with a real estate sale that netted us some profit. You can read about using a cash windfall here!
Another $10,000 was used to pay down our HELOC.
Side note – if you want to know whether you should pay off your student loans or invest, emotionally I like getting rid of debt for the peace of mind. However, a quick way to check out how “Efficient,” your student loans are is to use the cash flow index formula. Simply take your loan balance and divide it by your monthly minimum. The result is your “Cash Flow Index,” which determines the loan efficiency. A score of 100 or more = very efficient. A cash flow index of 50 or less… well you should pay that off!
5. Focus on Delaying Gratification when Paying Off Student Loans
Ok… here it is… the magical trick behind paying off student loans: You have to make it a priority.
Do you need to delay on everything and cut out a few things in your life? Well that depends on how much you have and what your goals are long term. I will admit, for us just getting rid of student loans and being student loan debt free at 32 and 31 sounded much better than having student loan payments at 52 and 51 when we were sending our kids to college.
Now that being said we might be a little more fanatical about it than most. But we wouldn’t change a thing because we have learned so much about ourselves, our capabilities, and long term thinking.
Trips, nights out, no birthday gifts, no gym memberships and reduced budgets in all areas of spending are just a few things we did over the last three years to help us with paying off Lauren’s student loans.
But the beauty of delaying gratification is the word delaying. Delaying does not mean ending. We will be taking 5-10 vacations per year for the rest of our lives once we are student loan debt free.
Imagine taking 5 trips a year… would that be worth paying off some student loans?
Some of our family members and friends couldn’t understand why we couldn’t travel after our wedding in 2016, or why we couldn’t go to the beach last summer. But then again, most people won’t understand how we are able to take 5-10 trips per year starting in 2020.
So if you are contemplating delaying gratification but you are hesitant to put your back against the wall I say go for it. That doesn’t mean you need to make a declaration on Facebook announcing you are no longer traveling or going to as many weddings to focus on paying off your debt.
Just talk to your spouse about getting on the same page financially if you have one, get on a budget and get all in towards your long term goals.
Had we not gotten serious about making our student loans disappear, we wouldn’t have focused on creating additional income and I highly doubt I am writing this blog post right now… so in sense student loans actually changed our life for the better… as twisted as that sounds!
6. Side Hustle to Help Pay Off Student Loans
So yes, we use strategies like leveraging equity and cash windfall payments to pay off student loans, but we also focus on making more money, which I think is key to helping us pay off our student loan debt.
You can refinance your student loans, you can consolidate (which I highly advise not to), but at the end of the day if you are refinancing to get a better payment consider facing the problem head-on.
That problem being cash flow, or the amount of money you have to throw at your student loans. One way to do that is to create a side hustle, which usually involves doing something you might like or you are good at on the side of your full time job.
Typically, side hustles are personalized, meaning you do it when you want and how you want. That being said, having a diverse background in sales, marketing, digital marketing, and now even hopping into a little consulting, my wife and I were able to create an additional $8,000 in 2018.
That extra $8,000 alone for most people can rapidly increase their student loan payoff date. Here is a list of side hustles that can help you!
Pay Off Your Student Loans, Your Future Depends on It.
Look, I will go on the record and say this – pay off your student loans. All they really do is cause stress. Without getting into all the negative implications of student loans, I will just say if you took them out you will most likely be paying them off, why not just get it done?
They impact your debt to income ratio. Student loans can dictate where you live, with whom you live with, how you live and even how many kids you have. Don’t believe me, just observe the amount of millennials room sharing, I was one of them!
For my wife and I, getting on a budget was the first step we took in the fall of 2015. After being engaged for a few months and realizing that over the long haul we would rather enjoy the rest of our life instead of our current life, we got serious with paying off our student loans.
In November of 2016 we had $261,000 in student loans. Today, we are proud to let people know that we have a student loan balance of just north of $80,000. Another $40,000 sits in a HELOC that we pay off monthly as noted above.
In 2019 our goal is to drop the $80,000 student loan balance to 0, then focus on the house next! So if you got some student loan debt you can do it. Just ask yourself this question:
Would you rather live like everyone else now, or live like no one else later?
All the best!
~Josh
Q: How much student loan debt do you want to pay this year? Comment Below!
Josh writes about ways to make money, pay off debt, and improve yourself. After paying off $200,000 in student loans with his wife in less than four years, Josh started Money Life Wax and has been featured on Forbes, Business Insider, Huffington Post and more! In addition to being a life-long entrepreneur, Josh and his wife enjoy spending time with their chocolate lab named Morgan, working out, helping others with their debt and recommend using Personal Capital to track your finances.