Do you have student loans? If you do, you are not alone. In the US, 44 million borrowers collectively owe $1.5 trillion in student debt in 2019! I used to be responsible for $150,000 of that $1.5 trillion, but not anymore. In this article, I’ll share how I paid off $150,000 of student loans in 2 years, and give some tips and techniques that can help you pay off your loans too.
I was a student, in one form or another, until I was almost 35 years old. That’s a long time in school, and during those years, the student loans really added up. I’m a dentist now, so unfortunately, I had to pay the high cost of a professional degree. When I finally finished all of my training, I had racked up about $150,000 in student loans. As I approached the end of my time in school, the thought of that monstrous debt hanging out there was starting to make me sick, I just couldn’t imagine paying off a loan of that magnitude.
I knew that I’d be making a good income, but still, paying off that amount is basically like buying a house…but not getting a house! All I could see was many years of financial stress unfolding in front of me. I absolutely detested the idea of that, so I decided I wasn’t going to stand for it. I took action and make a firm goal: I was going to have all of my student loans paid off in 3 years and be completely free of student debt. That seemed like a pretty lofty goal, but I was absolutely determined to make it happen.
It took a lot of discipline, but to my surprise, I was able to pay off every dollar of my $150,000 of debt in just over 2 years. Paying off my debt way ahead of schedule is a decision I have never regretted.
TEN YEARS OF DEBT? NO THANKS
My original payment plan was for a 10 year repayment period. I absolutely didn’t want to have that big loan payment, month after month, until I was 45 year old. Over that time period, I knew that I was going to be needlessly paying loads of money in interest. If you want some good motivation to pay off your student loans early, take a look at a student loan calculator and see how much interest you’re going to be paying over your repayment period.
By paying off my loans in 2 years instead of 10 years, I saved $50,000 in interest payments! Keep in mind that the only thing you are gaining from your interest payments is increased repayment time. You are paying interest to rent repayment time from your lender. If you don’t need all of that time, don’t pay for it!
BENEFITS OF PAYING OFF STUDENT DEBT
- Reduced financial stress – a huge burden was lifted from my shoulders, and my financial future started looking very bright as I finished paying off my loans.
- It frees up a lot of money that you can invest however you see fit. When you pay off your loans, the amount of money you were paying each month becomes free cash flow for you to use/invest.
- You will save a ton of money in interest if you decide to pay off your loans way ahead of schedule.
HOW I REPAID MY LOANS FAST
There is nothing too complicated or advanced about getting your student loans paid off way ahead of schedule. It just requires discipline and some alterations to the way your lifestyle changes over time. Here are some techniques I used to drastically reduce my repayment time:
BEFORE FINISHING SCHOOL
Managing your student loans starts way before you graduate. One key to making student debt more manageable is to borrow less money in the first place. There are lots of ways to make school more affordable so that you can minimize your debt load. A few big money savers are:
- Live with roommates or with your parents if possible.
- Work part time while you are in school.
- Apply for every scholarship you can.
I aggressively applied for any available scholarships when I was in school, which significantly reduced my debt burden. Between scholarships, and living with my parents for much of the time I was in dental school, I easily saved myself $50,000.
If you let your cost of living get out of control during school, you will accumulate more debt than you will be able to repay. During a financial aid lecture at the beginning of dental school, my class was told: “If you try to live like a dentist when you are a student, you will be living like a student when you are a dentist”. In retrospect, that was great advice. By spending lots of money while you are in school, you are robbing your future-self of the lifestyle you want to have some day.
AVOIDING LIFESTYLE INFLATION
THIS IS THE BIG ONE. The importance of avoiding lifestyle inflation can not be overstated.
There is no amount of money you can make that you can not easily spend by inflating your lifestyle to meet your income level.
There is an undeniable temptation to start spending lots of money and living large after graduating and getting a real job, especially when that’s what you see your friends doing. But if you take your broke-student lifestyle, and extend it beyond graduation, you will be able to pay off your student debt so fast it will make your head spin.
When I got my first job after graduating, I was making good money and could have started living a pretty luxurious lifestyle. But I always had my loan repayment goal in the back of my mind, so I didn’t let lifestyle inflation happen. I rented a modest one bedroom apartment, kept the same car I had while I was in school, almost never ate out at restaurants, didn’t get a cable package, didn’t go on expensive vacations, and ate rice and beans almost every night (and it was delicious, by the way).
When I would see one on my friends (most of whom had even more debt than me) driving around in a new BMW, I would sometimes think that I “deserve” to be living like that too. But I just had to remind myself that what I really deserve is to be out of debt and enjoying financial freedom, and that’s worth far more to me than driving around in some fancy car.
Avoiding lifestyle inflation was by far the biggest factor in allowing me to meet, and beat, my student loan repayment goal. I didn’t have to make any painful cuts to my lifestyle, I just had to keep living the way I already was. I was perfectly content continuing with the lifestyle I was already living. This simple change freed up thousands of dollars a month that I used to pay down my student debt.
FIND OUT IF REFINANCING MAKES SENSE
Refinancing your student loans at a lower interest rate can be a great way to save a lot of money on your repayment. If you are going to try to refinance, do your research to make sure it is going to be worth it for your situation. Keep in mind that when you refinance your federal loans, you lose the more flexible repayment plans offered on federal loans.
I could have lowered my interest rate by refinancing, but I decided not to. I don’t go against the math too often, but this was a psychological move for me. The higher interest rate actually gave me the added motivation to pay off my loans really fast, so I ended up saving lots of money due to the speed of repayment. If my interest rate was much lower, I would have felt less pressure to pay the loans so aggressively.
Just knowing that I was being charged about 7% interest on my loan balance gave me more motivation than anything else to pay off my loans as soon as possible.
PUT YOUR LOAN PAYMENTS ON AUTOPAY
This is an easy one – free money. Your lender will usually automatically give you a small reduction in your interest rate if you just put your monthly payments on autopay from your bank account. My interest rate was reduced by 0.25%. It’s not much, but it’s a totally mindless way to save a little money each month.
DON’T NEGLECT OTHER AREAS OF YOUR FINANCES
Even though I was paying off my student loans aggressively, I was careful not to totally neglect the rest of my financial life. Paying off my loans was a high priority, but I didn’t want to pay my debt at the expense of my current and future financial stability. So I made it a priority to save up an emergency fund of a few thousand dollars and fully fund my IRA each year. After funding the emergency fund and the IRA, I dumped almost all of the rest of my money into my student loans.
I knew that I could always pay more toward my student loans, but if I missed my IRA contribution for a year, I was not going to be able to make that up, it would be a lost year for my IRA. I believe that maximizing the use of tax advantaged retirement accounts is a top priority, and is the most valuable use of today’s dollars.
A little more than 2 years after finishing school, I had paid off $150,000 in student debt and felt great about it! I have never regretted the decision to pay off my loans early. The feeling of freedom I have from being debt-free is priceless, and I wouldn’t trade it for anything.
Just a final disclaimer: paying off student debt as fast as possible is not the best approach for everyone. Depending on your amount of debt and your income level, you may be better served looking into one of the many student loan repayment plans available. If you know what your repayment options are and what your personal priorities are, you can find the repayment plan that makes the most sense for your situation.