On May 20, 2012 I graduated from college with about $35,000 in student loans. Considering I paid for college on my own and went to a top private school, I don't think this is an outrageous amount to owe. But then again, it is a lot of money. So I have been making (much) more than the minimum payments and am focusing my resources on paying off the loan with a higher interest rate first. I am still contributing a good amount of money to my 401(k) account and will write another post about why I'm prioritizing retirement and getting out of debt.
My loans originate from two sources: an unsubsidized loan from the federal government with an interest rate of 6.8% and a subsidized loan directly from my college with an interest rate of 5%. Both entities outsource repayment to loan servicers, so the worst part was trying to figure out who I owed money to. I know that sounds crazy, here I was trying to hunt down a company so I could give them money. I waited for my six month grace period to end, thinking when the time came, they would want their money. I was right. I'm sure lots of other recent grads follow this same plan. The downside was interest kept accruing on my federal loan. I wouldn't recommend anybody purposefully take this route. Especially if your loans are unsubsidized, don't wait. Start paying them as soon as you get your first paycheck.
The minimum on my subsidized loan cost $98 a month. About a year ago I increased my automatic payment on that loan to $150 a month. I know that I could use that extra $52 to pay my loan with a higher interest rate, but my thoughts are (1) I probably spend less on other things than if I had this $52, (2) the interest rates on the loans are pretty close at 5% and 6.8% so I'm not losing much in the interest difference, and (3) this will help drop my subsidized loan much more quickly. Plus $150 is totally affordable.
Then I turned my attention to my unsubsidized federal loan with a rate of 6.8%. The minimum monthly payment was about $280. Since I want to be out of debt as soon as possible, I'm putting every extra dollar I have to paying off this loan first. I make it a priority to pay at least $800 a month and try to scrap together as much more as possible. I make multiple payments a month, pretty much with every paycheck and when I realize I have a little extra in my checking account. That means some months I pay about $800, but my best month I paid $1,450.
I love paying my student loans. That's right, I love it. I like checking to see when my last payment hits my account and how much my total has dropped, even if it's just a hundred dollars. Making payments a few times a month not only helps me constantly scrap together payments but also rewards me with seeing the frequent drop in total debt owed.
At this rate I will be done with my federal loans by the end of 2015. Then I'll turn my attention to my smaller, subsidized loan, which should take about 4 months after that point to pay off completely. That means by age 26 I will be debt-free.
