We’re gathering your questions about all things money and finances. Then, each week, we get your questions answered by the people who know best.
Morgan from Chicago asked about student loans.
“What’s the best way to pay them off, especially in this tight employee market environment where it’s harder to secure high paying jobs? For context, I just graduated … so I’m facing the repayment of these [loans] very soon.”
Ross Mac, financial educator and founder of Chicago-based Maconomics, said having a game plan for tackling your student loan starts with understanding the loans.
“I would actually write down everything so you know how many student loans you have … their balances, know the loan type and then also know what their interest rates are,” Mac said.
In a tight job market, it’s worth considering an income-driven repayment plan. He said these plans will set your monthly payment based on your income and family size.
“If you’re starting out [and] getting a job that has a lower than expected salary, that’s going to help you not feel overwhelmed early on,” he said.
A helpful tool can be the Federal Student Aid’s online loan simulator that compares the various repayment plans, including the income-driven plan. It also helps borrowers estimate their monthly loan payments and decide whether they should consolidate their student loans. If a borrower is considering taking out additional loans, the simulator can also show potential impacts and federal loan limits.
“Another thing I want you to potentially consider … is a job that has [employee] benefits that might just offer student loan repayment assistance,” Mac said. “There are a few job fields that actually offer this, whether it’s health care, education, government, etc. This is obviously a hidden perk.”
He said once you’ve nailed down a job and reviewed your loan details, you can create a repayment plan that works with your budget.
Mac suggested paying off student loans using the debt avalanche method, once you’ve figured out how much extra money you have at the end of the month.
“You commit to paying the minimum payments on all of your debt,” he said. “And every extra dollar you have, you place it toward the highest accruing debt. And you continue to do that month after month until that highest accruing debt is paid off. Then you move on down the line to the next highest interest debt. Over time, the debt avalanche will save you the most money because you’re attacking the debt that has the highest interest rate.”
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