About 43 million adult Americans owe $1.56 trillion in student loans. What’s more, an estimated $119 billion of student loans are from private sources that are not backed by the government.
Student loan debt is an increasingly serious issue in the United States. In most cases, higher education is necessary to obtain a decently paying job. Upon graduation, it can be hard for some people to land a high-paying job, and they often end up with one that pays significantly less, or in some cases, pays minimum wage.
This makes it extremely difficult for students to make significant payments on their student loans, which can ultimately put them in debt. In the worst instances, students unable to pay their debts end up in a cycle of poverty, which is extremely difficult to get out of.
Fortunately, there are ways that students on a tight budget can make payments towards their debts. If you’re struggling to make payments on a tight budget or looking to pay less on your student loans each month, this guide will help you understand how to create a budget that works for your income and lifestyle, as well as the repayment plans available to make paying off your debts easier to handle.
Table of Contents
Budget
In order to make payments towards your student loans, it’s important to get your budget in order. You may be operating on a tight budget, but that doesn’t mean it shouldn’t have a structure.
Start by analyzing what your income is on a weekly or monthly basis. Then, compare that to what you owe in expenses each month. From rent to utility bills, food, clothing, and miscellaneous or emergency expenses, don’t leave anything out. This includes your student loan payments. Once every expense is accounted for, you’ll have a better idea as to whether you can realistically afford what you owe.
Take Account of Expenses
When considering the expenses you have, identify the ones that are necessary. Consider both short- and long-term expenses. This will give you a better idea of how long you’ll need to continue budgeting for any given expense. If you find areas, where you can cut back on your expenses or shift money around to put towards your student loans, doing so can help you pay your loans back sooner and with fewer interest charges.
Set Reasonable and Specific Goals
When it comes to paying back your student loans, don’t get too ambitious and set unreasonable long-term financial goals for yourself. Instead, it’s better to set achievable, measurable short-term goals. Doing so will allow you to pay off your student loans with ease.
For example, setting a goal to pay off your student loans that total $50,000 in a year or two when you’re only earning $30,000 per year is an impossible goal. Instead, break your long-term goal of paying your student loans in full down into smaller, short-term goals. In this case, paying $5,000 a year is a more realistic goal that you can achieve. Once you’ve hit that milestone in a year, you may have gotten a raise or a new job that pays more. When this happens, you can adjust your repayment goals.
Make a Plan
When you create a budget and outline your expenses, each part of your income should have a job. Create a specific plan that details where every dollar of your income will go. This may take careful planning when it concerns budgeting for grocery shopping or inconsistent expenses, but by planning carefully, you’ll be able to see where there may be excess amounts that can go towards the expense of your student loans.
Choose the Standard Repayment Plan
In most cases, the standard repayment structure that your loan provider offers will work just fine and prevent you from getting in over your head. If and when you’re able to pay a little bit extra, always do so. This will allow you to reach your financial goals and pay off your student debts sooner rather than later.
Look Into Assistance Programs
In the event that the standard repayment plan doesn’t work with your budget, there are assistance programs available to help you repay your student loans.
Loan repayment assistance programs (LRAPs) can help you manage and pay off your student debt in a reasonable amount of time. Certain schools, states, and employers will offer LRAPS to help recent graduates with their student loan debt. In some cases, you may be required to work for the government or in an area of public service, but some employers will offer LRAPs as a benefit of working with their company.
Refinance if Necessary
Some people choose to have their student loans refinanced to receive a better interest rate or a lower monthly payment. This is a feasible option for people working with a tight budget, but you should do so with caution. Refinancing student loans may not be the best option if you have poor credit or your income isn’t enough to cover even the refinanced loan.
If you’re almost done paying your student loans or you think you’ll need to enroll in an income-based repayment plan in the future, refinancing your student loans may not be the best choice.
If you have multiple student loans and a decent paying job, refinancing your loans may be right for you. If you are going to do so, research lenders and compare their rates to find the one that’s right for you and your budget. In some cases, you may be able to refinance with your existing student loan provider.
Use Deferment or Forbearance When Necessary
If you absolutely cannot make payments on your student loan debt for a period of time, you can have your loans deferred or put into forbearance. You must qualify to do both.
Instead of simply not paying on time, having your loans deferred or put into forbearance gives you time to generate the funds you need to pay back your loans without penalty. Not paying your loans at all could cause you to go into default, harming your credit and your future chances of obtaining another loan. In some cases, your employer may garnish your wages if you default on a loan.
Consider a Side Gig
If you need more money to pay off your student loans, a side gig can help. This is a source of additional income that increases your take-home pay. The earnings from a side gig can be helpful in chipping away at your student loan debt or supplementing the income you don’t obtain from your day job.
A side gig can be anything you’re good at and can charge people money for. Popular examples of side gigs that pay well include babysitting, freelance writing, dog walking, and even blogging.
There are a number of ways you can take control of a tight budget, create a savings plan, and pay back your student loan debt over time. With a careful action plan, you’ll be able to work your way out of debt on your own terms.
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