STUDENT LOANS SIMPLIFIEDA No-Nonsense Guide On How To Understand, Manage, and Pay Down Your Student Loan Nightmare.
Are you one of 40 million Americans who hold student loan debt?
Do you feel trapped by your monthly payment and need help?
Do you want to pay down your debt but just don’t have a clue on where to begin?
IF YOU’VE ANSWERED YES TO ANY ONE OF THE QUESTIONS ABOVE, THEN YOU HAVE LANDED IN THE RIGHT PLACE.
My name is Alex Savin, I’m an accountant, entrepreneur, son, brother, husband, and after this journey is over, hopefully you can call me your friend.
I’m a seasoned student debt veteran that successfully paid off my student loans, in full, back in 2015.
It took 10 years, one recession, two long bouts of unemployment, and lots of tear soaked ramen noodles, but I did it.
And like an aging hero who hung up his gloves, I’ve been called out of retirement by my lovely wife who managed to successfully rack up $295,315.00 in her own student loans.
Wife's Student Loan Debt. In Dollars. FML
My goal here, is to create a simple tutorial for all individuals who are daunted by the financial complexity and responsibility of student debt.
By publishing this guide, I aim to prove that, A) you don’t need a degree in finance to understand this stuff and B) you don’t need to pay a debt management company to create a plan for you.
Don’t believe me? Here’s some personal proof of what kind of damage my simple system can do to a student loan. As mentioned earier, it took me a total of 10 years to pay off my loans in full. Just look at the loan history starting from the bottom. My student loan was either deferred or in forbearance for about 5 years, and the balance kept growing! But notice what happens in 2012, I entered repayment and the next thing you know it, 3 years later, the balance is paid off in full!
So what did I do in those 3 years that I couldn’t do before?
For me, the major game changer came down to focusing on my numbers, making a realistic plan, and executing it until I saw a giant ZERO on the Payment Due field.
And I hate to say it, but what “they” say about numbers is true. Numbers don’t lie.
You can’t make a plan or a good decision without the data and evidence to support it. Period.
…So what are YOUR numbers going to tell you to do? Let’s find out, shall we?
THERE ARE ONLY 3 SIMPLE BUT NECESSARY STEPS TO CONQUERING YOUR STUDENT LOANS. SO LET'S GET STARTED!
Identify ALL your student loans.
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Assess your financial health.
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Make a plan and execute.
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STEP ONEGET YOUR LOAN INFORMATION AND ORGANIZE IT IN AN EASY TO READ SPREADSHEET
The first thing you’ll need to do is, try to think back and remember exactly what kind of loans you ended up taking out for your education. There are many types of student loans out there, but the main ones that most students hold will fall into one of two categories, Federal or Private.
The federal government has a website where you can get all your federal loan data and you should start there first. But before we get into that, it’s important we take a break and brush up on our loan knowledge.
Keep in mind that, all loan types will have their own separate terms and conditions that tend to confuse people. And what starts off as confusion, leads to frustration and anger which eventually leads to giving up on this entire process.
For now, I’d like to avoid any and all confusing information and keep things simple After all, we’ll have plenty of time to go over those later.
FEDERAL STUDENT LOANS
tax payers federal government.
- Payment is not required while you’re still in school.
- Interest rates are usually fixed and lower than private school loans.
- Credit checks are not required.
- Interest subsidies are available on some loans.
- Most cases do not require a co-signer.
- Interest is usually tax deductible.
- Multiple repayment options are available.
- Loan forgiveness is also available in qualified situations.
- Loans cannot be discharged in a bankruptcy.
- Wage garnishment, Tax refund and Social Security withholding is possible.
FEDERAL LOAN TYPES SIMPLIFIED
- Direct Subsidized Loan – Eligibility is based on financial need. Interest is paid by the government during certain periods. Lowest Interest Rate.
- Direct Unsubsidized Loan– Financial need is not required. You’re responsible for interest from day one.
- Direct PLUS Loan– Mostly for graduates. You’re responsible for interest on day one. Highest interest rate out of all the loans.
- Direct Parent PLUS Loan– Same as a Direct PLUS Loan. Except, your parent is responsible for paying it back.
- Federal Perkins Loan– The school is the lender. Eligibility is almost always based on financial need.
PRIVATE STUDENT LOANS
tax payers banks.
- They gave you money for school.
- Payment may be required while you’re still in school.
- Interest rates can be variable and much higher than federal loans.
- Credit check is almost always required.
- Interest subsidies are not available.
- Co-signers can be required.
- Interest may not be tax deductible.
- Repayment options are very limited.
- Loan forgiveness is never an option.
- Loans cannot be discharged in a bankruptcy.
- Wage garnishments are possible.
PRIVATE LOANS SIMPLIFIED
Private loans come in all kinds of different shapes, sizes, and terms. And because these loans are issued by private banking iinstitutions categorizing them into buckets is very difficult. However, if you do hold private school debt, then there’s a high chance you got it from one of the lenders listed below.
- Sallie Mae
- Citizens Bank
- Wells Fargo
How To Get Your Federal Student Loan Data
NSLDS stands for, National Student Loan Data System. It’s the Department of Education’s central loan database and it’s where your loans come to live after they’ve been disbursed to your school.
* Important Note: NSLDS will only show TITLE IV loans. In other words, you’ll be able to find all federal loans reviewed above. Additionally, any Parent PLUS loans taken out for you by your parents won’t be listed under your account. If any Parent loans do exist, you’ll have to have your parents log in to get that data.
- Navigate to NSLDS.ED.GOV
- Log into your account and go to the “Aid” tab in the top navigation bar.
- Here you’ll find all your loans listed in the order of your most recent disbursement. Using my wife’s loans as an example, it looks like this.
How To Get Your Private Student Loan Data
If you took out private loans to pay for your education and can’t remember the details, you’ll need to run a credit report. There’s only one legitimate website that will provide you with a full credit report from all three major agencies so be very careful. If you didn’t take out any private loans, feel free to skip this step. The government credit report site allows you to grab a free report every 12 months, so I still recommend you do this just to review and confirm that all of your debt information is correct.
1) Navigate to ANNUALCREDITREPORT.COM, the only federal site authorized to provide you with a free credit report every year.
2) Request a report from all three credit agencies by placing a check mark in all three boxes and click on “Next”.
3) TransUnion should be the first report to pop up. To view the report, click on “Continue”.
4) Once you have your report loaded, I highly advise you to both save it as a PDF and Print it for your records. And remember, your free credit reports will not have a credit score attached. If you want to see it, you’ll have to pay a small fee. But before you pay to see your score, check to see if any of your active credit cards offer it for free. As an example, my American Express Preferred and Discover IT cards, both offer a free score every month.
How To Organize and Analyze Your Student Loan Information
After you’ve retrieved your loan information, we’ll need to plug all of it into a spreadsheet. You can get this done using Microsoft Excel or another free solution like Google Docs.
But before you go creating your own spreadsheet, let me save you some time and give you one that I already made. All you have to do is replace my wife’s loan information with yours.
Download My FREE Student Loan Spreadsheet!
My student loan spreadsheet has everything you’ll need to properly analyze all of your student loan data AND complete all of the remaining steps of my process.
For those of you who want to waste time and are adamant on creating your own spreadsheet, please follow the instructions below. Otherwise, click the button above to download one that was already made to make your life much easier.
1) Create a new spreadsheet using your preferred software. I’m going to be using Microsoft Excel.
2) Label the following columns in the first row. These will be your column headers.
Loan Order, Type Of Loan, Loan Amount, Loan Date, Disbursed Amount, Outstanding Principal, Outstanding Interest, Total, Interest Rate, and Servicer.
3) Transfer your loan information that you got from NSLDS and/or your Credit Report into their respective columns on the spreadsheet. If you’re really good at excel, you can try copying and pasting the data into the spreadsheet first. More than likely, the pasted data will not resemble the ideal finished look, so you’ll have to tinker with it.
If you’re not great at manipulating data in excel just re-type the information manually and you’ll be good to go.
NSLDS users: You’ll have to click on each loan to get the interest rate and servicer info.
4) After you’re done, you should have something similar to this.
6) Get an average interest rate from all your rates listed.
7) Take your total outstanding debt and average interest rate, and plug them into a loan amortization formula with a 10 year period which equates to 120 total payments. The resulting total monthly payment should be a fairly accurate standard payment estimate of your debt. Using my wife’s loan figures above, I get $3,392.44 per month.
(If you don’t feel like messing with formulas, I’ve done all of this for you in my spreadsheet template. Simply plug in your student loan data and go to the second tab titled “Loan Schedule”. You’ll find your payment at the top in the Scheduled payment field)
Congratulations! You’ve successfully completed step 1 of 3 of my process. If you’ve done everything correctly, you should have a very accurate picture of your student debt.
- Step 1 Complete 33%
STEP TWOLIST ALL OF YOUR MONTHLY INCOME AND EXPENSES
Is your standard monthly payment even do-able? To answer that question, we’ll need to assess your financial health. And for that, you’ll need to list ALL of your current income and expenses. If you downloaded my spreadsheet, I’ll ask you to turn to the tab labeled “Step 2 Personal Financials”.
If you rather make your own, you’ll need to recreate my three mini sections just like my example below;
Section 1 – Income
Most of us make money through only one source, our day job. However, if you’re fortunate to have multiple income streams, please list each source and sum them up.
Section 2 – Necessary Expenses
The IRS defines necessary expenses as payments to support you and your family’s health and welfare, so it’s not up for debate or interpretation. This includes all expenses for which, if you don’t pay, may lead to homelessness and hunger. Think of it as the bare minimum you and your family need to survive.
Section 3 – Discretionary Expenses
These expenses are the complete opposite of the ones you listed in section 2. Typically, they’re your normal bullshit expenses that we’re all guilty of having. You know, shit like fad subscription services, trips to restaurants and bars, that pair of extra shoes that was on sale, or the new iPhone 10 you got by signing up on a payment plan. In other words, it’s all the shit you buy out of pure impulse.
I call them bullshit expenses, but the IRS refers to these as “discretionary”.
Why is this important?
Because, if you’re underwater with your loan payment, you should have very little of these type of spends. Additionally, all government income based repayment options will be based on a percentage of your discretionary income, so if you spend that income on bullshit expenses, you won’t even have enough for a bare minimum payment and that’s a major problem.
Putting it all together:
Now that you have all your income and expenses neatly listed on one page, the next step is to take the difference to see what’s left.
The number you end up with, translates to your personal discretionary income. This is the maximum amount you can apply against outstanding debts, save for a rainy day, or invest in opportunities that will make you more money.
Using the income and expense figures from my spreadsheet, we get the following;
$4,000 – $2,280 – $555 = $1,165 Personal Discretionary Income
How does your number compare? Is it positive? or negative?
You’re almost there! On to the last step!
- Step 2 Complete 66%
STEP THREEMAKING A PLAN TO EXECUTE YOUR PAYDOWN
‘Everyone has a plan until they get punched in the mouth” – Mike Tyson
This is by far my favorite quote of all time. Because like this guide, it’s simple and straight to the point.
Whether the hit comes from a bad plan, a health issue, losing your job, choosing a shitty major in college, whatever. Your reaction to the punch is the only thing that matters.
As I told you earlier, I’m not special. And neither is my wife. We went to school in hopes of greener pastures, just as you did. We all did our time, received our diplomas, and were left to fend for ourselves. It’s quite likely, that my plan for life was almost identical to yours, and it goes like this.
Go To College > Get a Job > Get Married > Buy House > Make Babies > Get a Better Job > Retire > Die
However, life rarely goes according to plan. And what “they” leave out, for whatever reason, are the constant fists that will be hurled at your plans almost every step of the way.
Your student loan payment is just another punch. One of many that will continue to come your way. This, I promise.
You’ll duck out of the way for some, but some punches, like student debt, are just unstoppable.
If you haven’t done so already, now would be a really good time to accept the responsibility for your debt. After all, no one put a gun to your head and forced you into this situation did they? Sure, you may have succumbed to peer or parental pressure, but in the end, no one forced you and no one cares.
You punched yourself in the face when you signed your name on the dotted line. Now, you have no other choice other than to pay it back. And that’s the good news.
I’m going to be honest with you here. A perfect plan to pay down your student loans does not exist. And anyone trying to sell you a solution probably does not have your best interest in mind.
Your student loan situation is like a snowflake or fingerprint, it’s unique only to you.
In other words, what worked for me, may not work for you. But one thing is certain, simply staring at your bills pile up every month and ignoring your responsibilities is not a solution to your student loan epidemic.
Every year spent procrastinating and ignoring your debt is another year of you consciously stealing from your future. Just imagine how much cash you can put away to savings or your retirement if you didn’t have this payment fucking your finances every month.
Do you like screwing yourself? I didn’t think so.
Here’s what I need you to do next.
You’ll make a plan and stick with it. If plan A doesn’t work, you’ll tweak it into a plan B and continue moving forward.
And just as I promised myself back in 2012, you too will promise, to not stop until the Payment Due line reads ZERO.
Getting Down To Business: Identify Your Student Loan ID
At this point in the process, you should have all you student loans, monthly income, and monthly expenses neatly listed in a spreadsheet.
Your final plan on moving forward will be driven by one final number that I call, your “Student Loan ID”. And we’ll get it by plugging everything together into my simple student loan ID formula.
If you’ve downloaded my spreadsheet, simply navigate to the tab labeled, Step 3 – Making A Plan. Otherwise, follow the formula math below;
Take your estimated monthly student loan payment from Step 1 and subtract it from the Discretionary Income figure from Step 2. The overall formula to get to your ID will look something like this.
Total Income – Necessary Expenses – Discretionary Expenses – Estimated Monthly Student Loan Payment = Student Loan ID Factor
Your student loan id will reveal one of two realities about your student loan scenario. You’re either going to be in the red and underwater or in the more favorable, in the black and over-spending pool. Let’s take a look at both scenarios in a side by side comparison below.
- Student Loan ID Factor is a negative number.
- Your income isn’t enough to cover your standard student loan payment.
- The cost of your education is greater than your degree’s earning potential.(most of the time)
- Income based repayment plans are your only option.
- Your student loan balance keeps increasing.
- Create a budget.
- Cut down expenses to a minimum.
- Make more money. (Necessary)
- Student Loan ID Factor is positive.
- Your income is enough to cover your standard student loan payment.
- Your earning potential is greater than the cost of your education.
- Principal and Interest repayment plans are an option.
- If paying, your loan balance is shrinking.
- Create a budget.
- Cut down expenses to a minimum.
- Make more money. (Optional)
Continuing to use my wife’s actual loan numbers and her estimated discretionary income, this is what I get.
As you can see, my wife’s student loan ID is a very large negative figure. Based on my recommendation formula, her #1 goal to get out of this mess should be a concentration on earning more income. I know it’s easier said than done, but numbers don’t lie, and that’s what the digits are screaming.
What does your ID reveal to you? I hope it looks better than my wife’s ! and don’t worry if it doesn’t. Please believe me when I say, there’s always a way out!
So there you have it, all the necessary information to begin constructing a pay down plan. As I previously stated, the pay down solutions are all going to be driven by your student loan ID factor.
So let’s take a closer detailed look at some options, starting with one for the peeps who are underwater similar to my wife.
What To Do If You’re Underwater With Your Student Loan Payments
1) The first thing you should do is to cut down on all of your discretionary (unnecessary) expenses. By doing so, you’ll be closing the gap and shrinking your student loan ID. As you can see, my wife’s discretionary expenses are hovering around $555.00 a month. Observe what happens when we bring those down to zero.
It went from -$2,227.44 to -$1,672.44. Now imagine if her factor to start was a -$500.00, we’d be in very good shape and have a positive $55.00 on our hands!
Unfortunately, we’re still in a hole here. But the hole looks much better than it did before, and that’s what we’re after here. Tiny tweaks and improvements are going to be the key to finding that perfect solution.
2) Find your most recent IRS tax return filing.
3) Locate your adjust gross income and plug that number into the Adjusted Gross Income field on the IBR Option Analysis tab located in my free downloadable spreadsheet. If you seriously haven’t downloaded it yet, I suggest you do so now. You’ll find your AGI on line 37 of your Federal 1040.
4) Next, locate your Poverty Guideline amount and plug that in to the appropriate field, this too can be found on the same tab of my spreadsheet.
5) Since all IBR plans are based on a percentage of your discretionary income, we’ll need to calculate that. And we do this by taking the difference between your AGI and 150% of your specific poverty guideline. Fun stuff right?
6) If you’ve completed steps 2-5 correctly, your discretionary income will be automatically calculated for you.