High student loan debt is a problem. (Actually, skyrocketing tuition is the real problem. But that’s a whole other issue).
Nowadays, optometry students are easily graduating with six figures of debt. Some of my colleagues in our 2009 graduating class had $200K+ in debt. I shudder to think where it will be in another decade.
Rather than grouse about how soul crushing student debt can be, this article will provide you a path to get out of debt quickly. Yes, it is possible to be free from student debt in a reasonable amount of time — that is, about 5-10 years after graduation.
But it’s going to take work. If you’re in school right now, all I can say is try to take the least amount of loans that you can. If that means sleeping on an air mattress in a living room for a year or two (which I had to do) and subsisting on rice and beans, then that’s what you’ll have to do.
It is rare to get subsidized loans for optometry school, which means all that interest will keep accruing while you’re in school. Having compound interest working for you as an investor is fun. Having it work against you is not! So keep that loan balance as low as possible. Trust me, your future OD self will thank you.
As for those of us already out of school, your debt is set and the goal is clear. It needs to be paid off. Just like you need an excellent business plan to start a practice, you also need a coherent plan to get out of debt.
The worst thing you can do is just pay the minimums and forget the debt is there. You will pay a ton of interest over your lifetime and that monthly payment will keep you from achieving your other life goals.
And the student loan interest deduction isn’t a good excuse. An OD who files their taxes as Single can’t take the deduction once they make more than $80,000. ($160,000 for a married couple.) That should happen pretty quickly in your career. And the deduction is capped at $2,500 worth of interest. That deduction is not worth keeping student debt hanging around.
Here are the steps you should take to get out of debt ASAP:
Step #1: Get your student loan debt in order
This seems like an easy step, but it can be surprising how many different places your loans can come from. I didn’t even have any private student loans, but when I graduated I had three different loan servicers to deal with. That means I had three logins and passwords to remember. It wasn’t a huge problem, but it was a minor annoyance.
In any case, find out which of your loans are from the government and which are private. Make a list of all of your loans in order of interest rate. Having it written out as like this will make the next steps much easier.
It can also be eye opening to see how much debt you actually have after all is said and done. Burn that number into your retina and make it your mission to get it down to zero.
Step #2: Consider Public Service Loan Forgiveness (PSLF)
There are a number of government programs out there to help ease your student loan burden. Almost all of them will have you paying much more in interest than you would if you paid off your loans quickly.
Income based repayment (IBR) plans are popular since they can greatly reduce your monthly payment, but depending on your loan balance, that payment might not even be enough to cover your monthly interest! So I’m not a really big fan of IBR programs.
The main government program worth pursuing is Public Student Loan Forgiveness. This allows ODs employed by a non profit 501(c)3 organization (such as a VA hospital) to make a total of 120 monthly payments and have their loans forgiven after that point. That’s 10 years of minimum payments and then home free after that! Pretty sweet.
In Step 1, we separated our loans into government and private loans. Only government loans are eligible for PSLF. Private loans need to be paid off by you. So if you have all government loans and a very high loan balance (think $150K+), then PSLF is definitely worth considering.
Working for a 501(c)(3) may not be the exact type of work you’re looking for, but if it means the closest thing to a guarantee to being debt free in 10 years, it’s well worth the effort.
Step #3: Refinance!
If the PSLF route doesn’t work, then student loan refinancing is the next step. I’m surprised how few of my fellow ODs take advantage of this option. Every single OD should look into refinancing their student loans at some point.
Most graduate student loans are in the 6-7% range. Private loans can be even higher. If you can get that interest rate down by a couple of percentage points, you stand to save tens of thousands of dollars in interest payments.
Refinancing your loans means the refinancing company will pay off your existing loan and set you up a loan with them. The idea is to get the new loan at the lowest interest rate possible. This could mean shopping around with a few different refinancing companies to see which offers the best rate.
This will not only reduce your monthly payment, but more importantly reduce the total interest you will pay over the life of the loan. Most refinance companies today have no fees to refinance and will even give you a bonus when you sign up. It’s a win on so many levels.
Back in Step 1 we ordered our student loans from lowest to highest interest rates. Knowing this will determine if you should refinance your loans or not. Any loans at a rate of 5% or above should probably be refinanced. I had a couple of loans in the 2% range so I didn’t bother refinancing those since no company could go lower than that. So definitely look into refinancing at least your higher interest loans.
Step #4: Let the battle begin!
Refinancing your loans to a shiny new interest rate feels nice, but it’s not going to pay off your debt. If this is a battle, Steps 1-3 were simply preparation. This step is where the fight begins because you will now focus on knocking down that loan balance as quickly as possible.
The most efficient way to pay off debt is to target the loan with the highest interest rate first. So after you’ve refinanced, list your loans again in order of interest rate and throw whatever extra you can at that highest interest rate loan.
Depending on how bad you want to be debt free, this can mean cutting back on luxuries and vacations or even delaying some saving. You need to find what level of spending you and your family are comfortable with.
But whatever extra money you can muster up should be used against that highest interest loan. Once that loan is paid off, you’ll have a little extra spending money. But don’t spend it! Roll that extra money into your previous monthly payment amount and apply it to the next loan on the list. Rinse, lather and repeat. You’ll be debt free before you know it.
Following these steps will get you debt free as quickly as possible. It’s up to you to how much of your income you want to throw at your student loans. There are other priorities like saving for the future and family considerations to take into account. But the faster you pay off that student loan debt, the quicker you will achieve freedom from debt.