How I'm Repaying $120,000 in Student Loans

In less than a month, I will graduate from my MBA program at Georgetown University with more than $120,000 in student loans at 7% interest. Six months after graduation, my grace period will end, and I will have to start repaying more than $1,000 per month. Here is my strategy for repayment.

Earn Baby, Earn

The first thing I have to figure out is how to increase my income from its current level. Without more money coming in, there is no chance for me to pay down my debt and maintain my current lifestyle. Some student loan repayment strategies I’m considering are taking on another job while I continue making money on my hobbies like blogging, graphic design and website development on nights and weekends.

Consolidate my Student Loans

Right now, I have thirteen student loans outstanding. Once the payments start after my grace period is up, I will have a paperwork nightmare. To simplify the repayment process and fix my interest rate, I am going to consolidate my federal student loans into one loan. Since I do not have any private student loans, I will be able to consolidate through the Direct Loan Consolidation program and avoid paying loan consolidation fees.

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Pick the Best Repayment Plan

There are several student loan repayment plans available to borrowers. Recently, a new plan was created called the Income-Based Repayment Plan. When I started my business in school, I chose to take a lower salary so I could reinvest more in my company’s growth. As a result, my Adjusted Gross Income was relatively low last year and the income-based repayment plan may be the best option for me. It may not be the same for other borrowers, so make sure to consider your repayment options and find the best repayment plan for your situation.

Manage and Track Spending

One of the keys to successful student loan repayment is creating a budget and sticking to it every month. Personally, I use this budget and cash flow worksheet to track where my money goes and set spending goals each month. No matter your method, find a way to hold yourself accountable so you never miss a payment on your student loans.

Rapid Repayments

There are a couple strategies I plan to employ to reduce the amount of interest I pay on my student loans. First, I am going to make a payment every two weeks, rather than one payment each month. This method is called rapid repayment. By paying every two weeks rather than once a month, I will reduce the amount of interest I pay dramatically over the life of my loan. Additionally, rapid repayment forces me to apply one additional payment to my loan each year. If I pay once a month, I make twelve payments per year. If I pay every two weeks, I make 26 bi-weekly payments, or the equivalent of thirteen months of payments each year.

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Apply Future Bonuses and Gifts Toward Debt Repayment

Debt repayment requires discipline and sacrifice. While I want to take bonuses and gifts and buy fun stuff, I simply cannot. The top priority after graduation is to eliminate my student loan debt as quickly as possible. In the past, my priority was building up my emergency savings fund. My new goal is to repay my debt. The choice is simple. Repaying my student loans is the equivalent to putting my money into something that returns a fixed rate of 7% each year. With interest rates on savings accounts and CDs paying low interest rates, it makes more sense to apply excess cash toward debt repayment. So whenever I get extra cash in my bank account, I will use it to pay off my loans first.

Image: Donkey Hotey, via Flickr