Four years of undergrad. Five years (or more) of graduate school. Postdocs. We’re talking a minimum of 10 years from start to finish in order to become a Licensed Psychologist! If you’re like me, you are paying your tuition and school expenses largely through student loans, whether federally funded or private loans. Each year, that number keeps adding up. What was once a small hill has now formed into a mountain of debt! And once you’re no longer a student, that mountain looms over you as you begin a required low repayment plan.
But what can a student do? Here are seven tips from my experiences a 32-year-old early career psychologist.
1. Understand capitalization of interest and pay off interest as you go.
Capitalization happens when student loan interest adds up over some specified period of time and is added to your principal loan balance. When this happens, the amount of interest increases as your principal balance increases; in essence, a snowball effect that makes the debt mountain get bigger and bigger.
It is highly recommended that you pay this interest while in school in order to keep your principal balance down.
2. Understand the difference between Subsidized and Unsubsidized loans.
Subsidized loans are government loans which do not collect interest while you are a full-time student.
Unsubsidized loans do collect interest while you are a student.
Keep this in mind when deciding whether to accept or reject potential loans. If you can make loan payments while in school (above and beyond paying off the accumulating interest), pay down the unsubsidized loans as this will save you money in the long run as you decrease the amount of interest being collected.
3. Looking for a postdoctoral position after internship? Defer those loans for another year (or two)!
I completed a one-year forensic postdoctoral training program to provide my supervision for licensure and get specialized on-the-job training in forensic psychology.
Although these positions typically pay less than a full-time job out of internship, there is the advantage that you can submit a deferment for paying back your student loans for the duration of the fellowship. Even if you feel comfortable making student loan payments, submit the deferment anyways for two big reasons:
First, if you are unable to make a payment on any given month because something big comes up in your life (for me, during my internship year I was involved in two no fault accidents and had to purchase two new cars in the process), you have the option to skip the payment.
Second, if you have subsidized loans, during a deferment the loans do not collect interest, just as they did not during the time you were a full-time student.
Personally, I deferred my loans and then chose to make small payments towards my unsubsidized loans which continued to collect interest during the course of my fellowship.
4. Be aggressive! Pay more than the minimum payment each month.
I purchased my first home approximately two and a half years ago (and yes, you can get a mortgage even with those outstanding loans). An interesting tidbit of advice I learned from my mortgage broker during this process is that even paying a small amount more than the minimum monthly payment can make a huge difference in your ability to pay down a loan faster.
The example given to me was that on a 30 year mortgage, paying $100 more than the required monthly amount will decrease the loan by almost half! This happens because that extra money goes directly to the principal balance, and as the principal balance decreases, so does the amount of interest you pay on the loan each month.
This logic certainly applies to student loans as well. I have made extra payments above and beyond my required monthly payment and I am beginning to see the positive effects of doing so. When I look at my account each month, the amount of my hard earned money that goes towards the principal balance has increased with a corresponding decrease in the amount of loan interest I am giving my lender.
5. Cut other expenses by shopping around for better insurance rates.
Another thing I learned through my home buying process was to utilize brokers to get the best rates on your other expenses, which is putting more money in my pocket.
I generally have always gone online and obtained quotes from insurance companies. However, I was given a referral to a local agent and contacted her about getting me set up with homeowner’s insurance.
She was able to get me a package deal with a reputable company for $600 less per year for a combined policy! Since she did not work for any particular insurance company, she was able to run quotes from them and negotiate a better deal than I could get simply going online or calling my insurance company myself.
That’s $600 more a year that I can use for my enjoyment, or if I want to remain aggressive paying back my loans, it can be another $600 a year decrease in my principal balance. Thus, it is a good idea to re-examine some of your personal expenses and see where you might be able to save some extra money to make paying down that loan mountain less cumbersome.
6. Look for jobs or programs that offer student loan repayment options.
If you can find a job that you like and not only offers a competitive salary, but offers you a package that provides money that you can use towards making your student loan payments, take that job!
That is extra money the employer is giving you on top of your salary. There are also loan repayment programs out there, such as the National Mental Health Corps, which provide student loan relief for working in underprivileged areas or hard-to-find jobs. You can search for available jobs here.
7. Be patient.
My last bit of advice is easier said than done.
At times, it may feel like those loan amounts are never going to go down as you look at your account each month. It will certainly feel more daunting as you take on a car payment, mortgage, or other loans as you make the transition from student to working psychologist.
I keep telling myself, and you should too, that one day these loans will be paid off and that mountain of debt will no longer be blocking the view.
Editor’s Note: This article was originally published in June 2015 and has been updated for accuracy and comprehensiveness.
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- 7 Tips for Climbing the Student Loan Mountain & Paying Off Debt - February 16, 2018