Debt Repayment

Where there's a will there's a way: Ashley Lee was determined to pay off student loan debt. (Photo credit: Greg Davenport) Ashley Lee, a money coach who works with millennials, likes to practice what she preaches. And last year, right before the pandemic hit, she made a deal with herself: She would pay off her student loan debt before year's end. At that time, Lee’s remaining student loan balance was $16,437. She had already been on a debt-free journey for almost 14 months with her student loan from Navient. Part of Lee’s debt-free plan included staying organized with the help of a detailed Google Sheet. Each month, she tracked the student loan balance, the payment amounts submitted, the amount applied to the principal and interest, and the daily interest for that month. “Using this spreadsheet allowed me to stay organized and informed on how the payments were applied to the loan,” Lee says. “It also kept me motivated as I watched the overall balance continue to decrease.” Lee, who also received a 4% raise and PTO (paid time off) payout check from her former employer at the start of 2020, kept putting any extra money she received towards her student loan. She felt confident she could see the light at the end of the tunnel. However, in March, the World Health Organization announced the coronavirus outbreak was officially a pandemic. The entire world, including student loan payments, was put on pause. Could Lee still pay off her student loan debt? Accelerating Payments Amid the CARES Act Passing When Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the legislation provided stimulus aid to employees, families, and small businesses across the United States. Student loans also received a bit of relief. Collections were halted on defaulted loans and interest rates were set to 0% for a period of 60 days starting March 20. Federal loan repayments are set to be in effect again starting Jan. 31, although President-elect Joe Biden has stated his intention to extend this pause on federal student loan payments on "day one" of his presidency. While the student loan pause gave thousands in debt a rare reprieve from making monthly payments, Lee saw the CARES Act opportunity a bit differently. This was actually a golden opportunity to accelerate payments on her student loan. How did she do it? “I recalculated how much I needed to send to my student loan lender every month, to pay off the balance by the expiration date of the administrative forbearance on Sept. 30, 2020,” Lee explains. According to the recalculations, Lee needed to pay an additional $250 each month towards her student loan balance. With Covid-19 halting many aspects of regular life -- going out to happy hours, visiting hair and nail salons, and seeing live concerts and movie -- Lee shifted money normally spent on entertainment toward her debte. In addition maintaining a tight budget, Lee also saved on commuting expenses while working from home. Each month, she was able to put $1,750 towards her student loan. Her final loan payment was made on September 25, 2020. Lee was determined 2020 would be the year she got out of student loan debt — and she did it. Here are more tips from Lee, who also hosts the podcast The Financial Key, about how to get rid of student loan debt. 1. Refinance High-Interest Student Loans If you carry private student loans, Lee recommends refinancing any loans that have high interest rates. Make sure to conduct thorough research prior to refinancing these loans. There are plenty of lenders to choose from, including SoFi, Juno and Earnest. Take notes as to which lender can provide you the best rate. Should you refinance federal student loans, too? No, says Lee, as doing so may result in losing out on options like subsidized loans, grace periods, deferment or forbearance, income-driven repayment plans, and student loan forgiveness that are only available to student loans at the federal level. 2. Pay More Than the Minimum Each Month This is a common piece of debt repayment advice that has proven time and time again to work. Paying more than the minimum, even if it’s just $10, helps decrease the overall lifecycle of your debt. “Student loans are designed to get borrowers to repay the principal balance, plus interest, during a set time period,” Lee says. “This is normally set at 10 years. Paying more than minimum each month will save you hundreds of dollars in interest. It can even shave a year off the life of your loan.” 3. Consider an Income-Driven Repayment Plan At the present moment, millions are struggling to pay rent and put food on the table across the United States. For many, it is simply not financially possible to afford the monthly amount due on their student loans. Luckily, there is help available. You may be able to put federal student loans on an income-driven repayment (IDR) plan. Federal Student Aid offers four income-driven repayment plans to loan borrowers: Revised Pay As You Earn Repayment Plan (REPAYE Plan): In this plan, the payment amount is 10% of your discretionary income.Pay As You Earn Repayment Plan (PAYE Plan): This includes 10% of your discretionary income, but does not extend past the 10-year Standard Repayment Plan amount.Income-Based Repayment Plan (IBR Plan): 10% of your discretionary income for new borrowers on or after July 1, 2014. Much like PAYE Plan, this is not more than the 10-year Standard Repayment Plan amount. If you are not a new borrower on or after July 1, 2014, it is 15% of your discretionary income.Income-Contingent Repayment Plan (ICR Plan): This is the lesser of the following. Either 20% of your discretionary income or what you would pay on a repayment plan with a fixed payment over the course of 12 years. In order to qualify for the IBR plan, you are considered a new borrower on or after July 1, 2014. You must not have an outstanding balance on a William D. Ford Federal Direct Loan Program loan or the Federal Family Education Loan (FFEL) Program loan. 4. Use the Snowball Method There are two methods for repaying debt: the snowball and the avalanche. Personally, I did the avalanche method. This is when you repay debt with the highest interest rate and/or the highest amount off first and work your way down to loans with smaller amounts. I did this with a private student loan of $25,000. It was my Mount Everest — a loan I chipped at for the better part of 2018 and paid off fully in 2019. Once I had scaled my proverbial Everest, all remaining debt felt like a glide to the finish line. If you’d rather not tackle Everest after 2020 — frankly, it’s quite understandable! — Lee recommends paying off debt with the snowball method. This method takes out loans that have smaller balances and/or interest rates, effectively “snowballing” your way to the big loans. You’ll feel confidence after paying off each smaller loan and these quick wins will keep you going as you repay loans with higher balances and interest rates. Heather Taylor is the head writer for PopIcon, Advertising Week’s blog dedicated to brand mascots. She been published on HelloGiggles, Brit + Co, Joy, Business Insider, and more online outlets. Find her on Twitter @howveryheather.

Debt Repayment

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Debt Repayment

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