Life without a Student Loan: Tips for Improving Your Finances

Many people in the country continue to face a high-cost, long-term debt burden because of their student loans. Research shows that student loan debt shackles many borrowers and prevents them from achieving their further academic, career and life goals. Although a repayment pause currently exists, a lot of borrowers have private standard and FFEL loans that prevent them from taking advantage of the relief.

While President Biden weighs possible options for dealing with a dysfunctional, national academic lending system and the stressful debt brought on by domestic and international economic problems, borrowers can and should imagine a more hopeful future. Even if you don't currently qualify for student loan forgiveness based on a disability, lawsuit or public service job, you might reduce your burden through an income-driven repayment (IDR) plan that can help you free up some of the money. Also, White House representatives believe that the President will have a plan in place by the end of summer, which means you might find yourself free of your debt before the end of the year.

Either way, you need to make your own plans today for how you're going to save or use the money made available to you when you're no longer repaying a student loan.

Add Up What You're Paying Out

Whether you're paused, benefiting from an IDR or currently still paying down your debt, make a list of the previous or existing monthly payment amounts and interest over the span of a year. Add the totals to gain a rough estimate of how much you might potentially save per year if you continue with a $0 or low balance IDR or eventually receive total student loan forgiveness. If you still mail your payments rather than pay online or via automatic withdrawal, add the cost of postage as well. As long as your income doesn't drastically change, the total roughly equals the amount of money you can expect to have available in the future to spend and save for your goals.

Make a List of Needs and Wants

Since the pandemic and other events have forced everyone to reassess how they spend their money, you probably already make lists related to your current needs. Yet, this new list could be the one that helps you actually achieve financial stability.

Write down your current monthly and expected future need-related expenses. Include estimated increased costs for food, clothing and hygiene, housing (mortgage and property taxes or rental), insurance plans (health, life and vehicle), utilities (heating and transportation fuel, electricity, garbage disposal, internet and water), and retirement and savings. Under this part of the list, outline current and planned non-essential expenses, such as fast food and restaurant dining, gym memberships and cable/satellite or streaming service subscriptions.

Before you can decide how best to allocate potential future money, you also need to know what you want to do with your life in regards to your career, family and happiness. Student loan borrowers took on this type of burden because they had dreams for their futures and believed that a higher education could help them achieve their goals. What were your goals? Have those goals changed? If so, what are your current dreams? If you plan to have children or marry, you need to consider potential costs related to these areas as well. Maybe you also have short-term goals, such as starting a new business or even replacing a computer or other piece of expensive equipment.

And Now for The Tricky Part

Traditionally, financial experts tell workers to follow a 50/30/20 budgeting rule. If you've followed it until now, you've done a great job. If you've never heard of it before today, that's okay too. The rule is a guideline to help you create a budget that can make it possible for you to improve your finances and reach your short- and long-term goals.

Spend approximately 50% of your net income left over after you pay your taxes on the immediate essential items from the needs portion of your list. If you're spending more than 50% right now, such as 60% or even 70%, don't worry. It's a normal pattern during tough economic times. That said, you need to find ways to reduce essential expenses, such as switching utility providers to one that charges less and seeking a new or second job that pays more so that you're making enough money to cover your necessary expenses without adversely impacting the two other areas of the budget.

You next use 30% of your income to put toward your wants or non-essential expenses. If you're paying more than 50% on needs, you should reconsider your non-essential spending. For example, you might give up the gym membership and exercise at home. Several streaming sites also offer free, ad-supported television and movie options. Believe it or not, you should also include any non-essential home remodels or renovations in this area unless you know that the updates will increase your home value and provide you with insurance or other savings.

Lastly, put aside 20% toward your retirement and savings. Some people actually refer to the rule as the 50/20/30 rule because they want workers to think about these two critical areas of financial security before their wants. If doing so helps you stick with a budget that improves your finances, then it's okay if you put the 20% before the 30% when thinking about how you use your money. In fact, you can even reduce the wants percentage down to 20% and increase this area to 30% depending on your goals.

Things to Keep in Mind

A lot of borrowers currently have strong negative emotions about the student loan system. Some people received manipulative advice about federal FFEL loans and don't benefit from the federal pause. Some private loan recipients feel like lenders took advantage by promoting a higher education as both a necessity and expensive and; therefore, made them believe that student loan debt was an inevitable part of growing up. Additionally, many older borrowers have become upset that they must continue to pay on loans while younger generations receive access to an abundance of free educational opportunities or forgiveness after making poor judgment calls with certain for-profit institutions.

These factors and merely the general relief that comes from no longer owing a high debt historically causes most borrowers to go on high cost "revenge" shopping sprees that often cause new debt. When this happens, their finances suffer. You can prevent the same outcome by planning right now.

Important Reminder: If you're not currently receiving IDR or other assistance, speak with your student loan servicer or reach out to the Department of Education through the website.

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