Catherine Stolfi is a frugal spender and an avid traveler, enjoying sharing tips for saving money and spending it where it matters most.
My student debt was something that I, frankly, ignored for way too long. For me, it was always going to be there. And if asked, because I had government loans and I was part of the income based repayment plan, I would always reiterate the loan forgiveness that my loan type provided in 20 or 25 years. My plan for my debt was someone coming along and simply making it disappear. It was a non-plan. And then when my salary increased and I was struggling to manage the payments, I knew things had to change.
This is my journey to paying off $100,000+ in student loan debt while continuing to build my savings and leaving my 401K untouched.
The Income-Based Repayment Plan Became Unmanageable
The repayment plan for my loan was the income-based repayment plan, which kept my payments low, though this only worked when I was making a low salary. When my salary started to increase, so did the payment. When I first signed up for the income based repayment plan, I had no plans for the time when my salary would increase to the point where the payments would be utterly unmanageable. Now, here I was, living in a high cost-of-living area, making a decent salary for my age (35), and I couldn’t keep up with my monthly payments. There was something that had to be done. This was 2019, and 2020 was about to change everything.
My degrees were from both public and private schools, and my loans that were to assist with school costs were mainly government loans, with the exception of one private loan for a considerably smaller amount in comparison. I was able to graduate with two bachelor's degrees, being a double major, and then went back to school for my graduate degree a few years later. I did also use the loans to assist in paying for off-campus housing some semesters. I worked all through college at different part-time jobs, but the pay from them always went to everyday living costs like food, gas, my car and clothes. I left school with six loans—five government loans and one private—all with varying interest rates and balances.
The 0% Interest and Payment Freeze of 2020
When I graduated, my debt was $85,000, but due to interest and paying minimum payments, it went to $100,000 nine years later in 2019.
And then, the thing that no one could have foreseen happening happened; Covid hit. And while people were losing their jobs and shuttering their business, my job was secure since we make product that is essential during a pandemic. I was lucky, very lucky. This pandemic that devastated lives all over the world, either directly or indirectly, was a blessing in disguise for me, and this was especially when it came to my government student loans.
For those that held government student loans, payments were being automatically deferred with 0% interest on the balance and no payments being due during the deferment period, to assist as a form of relief for those impacted by Covid-19. This was the moment that changed it all. This was finally the opportunity to get my debt under control. I needed a plan and went right to researching how others tackled their high amount student debt. The advice I was reading though didn’t always apply to my situation completely but I was able to take some things from different places and apply what worked for me.
Do These Before Building Your Debt Relief Plan
- Remove yourself from unmanageable payment plans
- Take advantage of government deferments
- Learn about the Loan Forgiveness Plan
- Develop an investment plan
The Loan Forgiveness Plan
Let’s begin with discussing loan forgiveness and how this inspired me to organize this plan. Joe Biden had just become our 46th president, and brought with him a promise of loan forgiveness, but I wondered, “what exactly was his plan?” I knew that loan forgiveness was already an Obama-era incentive, so how was his plan different?
There have been some details released that, in the simplest of terms, include the cancellation of $10,000 of debt for all borrowers, with initial rumors being $50,000, though the latter is less likely. He would also want to continue the loan forgiveness terms of 20 years so that if you’ve “responsibly made payments” over that time, your loans would be forgiven.
Now, why didn’t this great bit of news comfort me? $10,000 is quite a lot of money, yet this amount of loan cancellation would not have a big impact on my $100,000 debt. Plus, they could have a salary stipulation by the time this bill is finally signed, which I might not meet the threshold for. Also, if I went the loan forgiveness route, would I want to continue to have this debt hanging over me for the next 20 years?
And yes, I have been paying into the loan forgiveness plan on some of my loans for 9 years now, but that’s still 11 years left and that’s only a couple of the loans. The others I have are from graduate school and those are only from three years ago. I didn’t want this debt hanging over me into my 40s, and 50s, the years when I had hoped I would be ‘building wealth’ and saving for retirement and to support my family.
Also, a New York Times Article came out in 2019 about the 10-year loan forgiveness plan. The 10-year loan forgiveness plan had reached 10 years of age, meaning tens of thousands of applicants would be eligible for loan forgiveness. There were 28,000 applications that year and there were 96 approvals. No, this is not a typo. Of those 28,000+ that applied, only 96 had their loans forgiven. When I mentioned earlier the stipulation of “responsibly made payments”, it turns out this is an extremely strict term. The applicants either weren’t on the proper plan or weren’t making the right type of payments towards their loans. Likely, these applicants were now starting from scratch with their debt when they were expecting complete forgiveness.
Given this, loan forgiveness was turning out to not be for me, but two more things happened in 2020 that completely convinced me that now was the time to get this debt out of my life.
First, I started investing my money in the stock market; money that was collecting dust in my checking account was moved over to a Free Brokerage account and now collecting real interest. Robinhood was the app that I used but there are quite a few out there for getting started on investing in the stock market. The returns in 2020 have been astounding, but even if this year had been a fluke, the average return for the stock market connected to the S&P 500 in a normal year was still 6-8% on average. Well, hold on, I have interest being collected on my student loans and when I looked at the interest amounts on those loans, they ranged from 6.84% to 5%. Essentially, that return in my investments was a wash when looking at the interest being collected on my debt. It was like those returns meant nothing.
Secondly, the US government made a big move in 2020 related to government loans to give us some relief. During the pandemic, the government put a 0% interest, zero payment policy in place. It was set to expire at the end of 2020 and was swiftly extended until October 2021. Well, there it was. This was my opportunity to build a plan, and I had time to build it because the daily compounding interest from my loans that I was drowning in finally had let up.
My Two-Year Debt Repayment Plan
I came up with a plan to pay off half my loans by the end of 2021 and the remainder within 2022, hopefully before the end of that year. It is also part of my plan to not to completely deplete my emergency savings nor my investments, and definitely not my 401k during this plan. Let’s look at my debt amounts and each amounts interest, as well as what loans I’ve already paid off.
My Student Loan Debt. Total: $101,231
|School Year||Loan Type||Loan||Amount||Interest|
Loan #1 - Graduate Loan
Direct Student Plus Loan
Loan #2 - Graduate Loan
Direct Unsubsidized Stafford Loan
Loan #3 - Graduate Loan
Direct Unsubsidized Stafford Loan
Loan #4 - Undergraduate Loan
Direst Subsidized Consolidation Loan
Loan #5 - Undergraduate Loan
Direst Unsubsidized Consolidation Loan
Loan #6 - Undergraduate Loan
Private Chase Bank Loan
Tackling My Loan Plan
My total student debt was $101,231.96 and I was pleased that I hadn’t refinanced in order to combine my debt. Seeing it broken down by loan, as it’s displayed above, actually made it feel less burdensome and realistic to tackle. After watching Dave Ramsey, a famous TV personality and financial advisor, and then watching YouTube videos of others with large debts and how they paid them down, as well as reading multiple articles of those that paid off large amounts of student debt, I decided to get get my plan organized.
I started by using a variation of the Debt-Snowball method. This is a method where you pay smaller debt amounts first so that you’re tackling your debt in ‘baby steps’, a famous Dave Ramsey method. My own priorities were different; I wanted to first remove the burden of a separate lender from all my other loans. Plus, my government loans were currently in forbearance, requiring no payments and no interest during the pandemic. So, I took the money from my savings account and paid the $2,253 private loan. Done! Gone! It felt powerful and I was ready to keep the feeling going. Finally, my debt was below $100,000. But not for long: that interest was going to rear its ugly head again, and soon.
Investments and Savings Interest Advantage
Now we’re up to today and given that I have 0% interest and zero payments due on the remainder of my loans until October 1, 2021, I thought, “Why deplete all of my hard earned savings now to pay off this debt?” This is debt that is essentially frozen in time. However, what wasn't frozen was the interest I earn on my savings account and the interest I receive from my investments in the stock market.
My savings account gives only a measly 1% return, but it’s something, and my investments definitely don't give a measly return. Just in 2020, I’ve had an almost 18% return on my investments in the stock market, and I’m no risk taker. I’m invested in long trusted companies, ETFs or Index funds … no risky penny stocks for me. And still, my return in 2020 has been outstanding.
2021 may not have the same generous returns as in 2020, but the average investment return in the stock market, including some of the worst years in the markets history, is about 6-8%. That 6-8%, by October 1st, 2021, could be the difference that allows me to pay off one of my loans entirely, compared to paying off only part of that loan if I took the money for that purpose now.
Your student debt relief plan would include:
- An Investments and Savings Accounts Advantage
- Utilizing the Interest Debt Snowball Method
- Knowing your refinancing choices
- Communicating Your Plan
The Interest Debt-Snowball Method
Loan #1 is not only the smallest loan that I owe but it also has the highest interest rate. Do I have the money now to pay off loan #1 from the table above? Absolutely! But will I pay it back now? No, I will not.
This will be the first of the loans I pay back before October 1st 2021, when that interest kicks back in. It’s better to take that money and collect interest on it now while I can so it can accrue to a higher amount that can pay off even more when my 0% interest expires.
By October 1st 2021, my plan is pay off loan #1 and loan #2, totaling $25,895, and this payment will come out of my savings account, which will have grown since investing it in January 2021. Also, note that loan #2 is the amount with the second highest debt.
I am using a variation of the Debt-Snowball method in a way that is to my advantage. The amount of the debt wasn’t what was affecting me the most; it was the high interest rates.
By October 1st 2021, my remaining debt will be $73,081 and after this point the interest will start kicking in. That’s when my repayment will need to kick into high gear. By December 2021, I will be able to pay off loan #4, the $11,735 amount, as this will be the smallest loan left with the highest interest rate. I will ensure that any gifts I receive during the 2021 holidays go directly to this debt. Plus, I will have accumulated two more months of investment returns by December from October, and that will give me a savings buffer.
The last two loans will definitely be the hardest. By the beginning of 2022, I will have two loans left to pay of the original six. The $15,703 loan and the $45,641 loan, with an interest of 5.31% and 5.75%, respectively, for a total of $61,344. It would be better to work towards paying down the largest $45,000 amount first because the interest is higher for that loan. Given the math of my monthly expenses, I would have about $3000 left a month to pay towards this debt. This might be the time to say, yes, I receive a generous salary and am lucky, and I’m also 35 and have been working my whole life towards this salary rate. This isn’t attainable for everyone, I know. However, there are two more parts of this plan below that could assist tackling the last of that loan debt.
Refinancing the Remaining Debt
The return from my taxes in early 2022 will provide an extra large payment on my debt, but this year is when I would consider a refinance plan from a private lender. Yes, having these loans as government loans up to now has been an advantage and has allowed me to pay off these loans quickly. However, the interest rate on these government loans is completely non-negotiable. It is locked in and there’s no changing it. On the other hand, if you refinance, and if you have a decent credit score, you could get a great rate and pay down your loans with a lot less interest being added to your balance daily.
As an aside, I want to share what I learned about using a low interest or initial 0% interest credit card to pay off your remaining debt. In my research, I saw plenty of advertisements and articles that spoke to how this works, and in a nutshell, it’s not without its many cons. First, with credit cards, nothing comes for free. If it sounds too good to be true, it likely is. Almost all plans I came across had either a transfer fee charged by the credit card or a transfer fee charged by the institution you owed that debt to. And ofcourse, the fee was a percent of what you owed or were transferring. If the whole idea is to reduce your interest payments on this debt, then this obviously was not the way to do it.
Another option, less appealing but something you should seriously consider if you have the means, is asking for an interest free loan from a very close family member, such as immediate family. Notice that I didn’t say, “a very close friend.” It is in my opinion a bad idea to ever borrow money from friends. A close family member such as a parent or partner is a trusted source and it’s someone that knows you're good for the payments, and that you’re not going anywhere. The most detrimental aspect of any debt is the interest, and so if you could relieve that aspect in any way, it’s absolutely worth one uncomfortable conversation to do it. A loan from family is something I would consider if I had the means in order to tackle that last bit of my debt but it may not be an option for me when the time comes.
Communicate Your Plan to Someone
Lastly, and this is the best advice that I’ve received thus far on relieving any debt, you need to tell someone your plan, someone that you’re close to and trust sharing your financial situation with. Why? You’re more likely to follow through.
And so here I am, sharing my story, not only for myself but hopefully to help someone else who is in a similar situation. It all starts with baby steps, and ignoring your debt won’t make it go away. By this time two years from now, my debt will be completely paid off, and I’m excited for the financial freedom of zero debt and endless possibilities.
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.
E Randall from Florida on January 26, 2021:
Fantastic article, thanks for writing this.
Amarachi Nkwoada from Nigerian on January 26, 2021:
$100,000 is quite a lot of money..But thank goodness you are now in control
Umesh Chandra Bhatt from Kharghar, Navi Mumbai, India on January 26, 2021:
Liz Westwood from UK on January 25, 2021:
This is a detailed and interesting plan. It's encouraging to find out that this is possible to achieve. I consider my generation to be the fortunate ones, as we were given non-repayable grants to go to university. Student loans came in later. All of our children are gradually having to pay theirs off.
Karen Hellier from Georgia on January 25, 2021:
Yikes, this article made my head spin. I can't even imagine having to pay off this much money. I graduated from college in 1982, and at that time only had a $700 loan to pay off. I went to a state school so the cost was a lot lower than if I had chosen a private school. I had also worked through college and also was an RA my last 2 years of undergraduate school so only had to pay tuition those years, not room and board because that was covered by my RA job. Then when I went to get my Master's degree a few years later, I was fortunate to be working at an agency that paid for my schooling because it was directly related to my job. I am so sorry that you have so much student loan debt to pay off. But it looks as though you have a handle on it all and good for you. I hope some other people with student loan debts read this so they can glean from knowledge from your article. Good luck to you.