If you still have student loans then your payments could be breaking your budget. Maybe your job doesn’t pay enough or the monthly payments are just too high. You don’t want to miss your payments because you don’t want to ruin your credit, but you also can’t afford to spend so much of your income on student loans. What can you do?!
Go back to school.
No, I’m not talking about taking out more student loans to go deeper in debt. All you have to do is become a part time student at a local community college (usually six credit hours or more) and get in-school deferment for all of your student loans for the time you are a student and nine months after. That’s basically a year without needing to pay a penny towards those loans.
Edit on 10/5/11: My student loan providers just informed me you only get the 9 month grace period once. They erroneously gave me a grace period and then took it away when they realized their mistake. I have edited the rest of the post to remove reference to the 9 month grace period. Most students use this grace period up right after they graduate college.
In School Deferment for Student Loans
If you have subsidized federal loans, the government will pay the interest on these loans and your principal will not grow while you are a student. Perfect! You put off paying the loans and the balances don’t get any bigger. This is a no-brainer.
If you have loans that are not subsidized, you have the option to either pay the interest every month or pay nothing and let the loan get a little bigger every month. Remember that you can always pay as much or as little as you want towards any loans, even when they are deferred. The benefit of an in-school deferment is that you DON’T HAVE TO PAY if you don’t want to.
If you are truly struggling with paying your student loans, this is a great way to give yourself some time to figure out how to increase your income or decrease your expenses to make the student loan payments manageable.
I can hear the objections now from the whiny butts out there.
It’s Too Expensive to Go Back to School
Community colleges are cheap. I live in Dallas and classes cost $45 per credit hour. That means it would cost just $270 for six credit hours, which would defer your student loan payments from the day you start classes to nine months after the end of the semester.
My personal student loan payments are $300 a month, or $3,600 a year. I can either pay $225 for six credit hours and the option to defer my loans for a year, or pay $3,600. As you can see, it’s cheaper to be a part time student and defer loans than it is to make one month of student loan payments in my situation.
But I Don’t Need Another Degree
You think you don’t need any more education. I think you’re probably wrong.
If you got a degree in Film or Women’s Studies or Communications or some other bogus major, there’s a good chance that you are either unemployed or working a low paying job that has nothing to do with your degree. I realize that not everyone with those degrees is struggling financially, and if you are the exception then I’m happy for you. My point is, the exception for your degree is someone who is making good money, whereas the exception for engineering degrees is a person who isn’t making good money.
If your degree isn’t very valuable in today’s job market, you can get started on a new degree that will actually help you get a job. Engineering is my favorite, but you can do anything that gives you a real skill. Accounting, Nursing, Computer Science, or even a foreign language will teach you a real valuable skill that will qualify you for different, better paying jobs, or make you more marketable in your current field.
Maybe you are happy with your college degree and really don’t want another degree. Great! You don’t need to be a degree seeking student to qualify for in-school deferment. Pick anything you want. Maybe you’ve always wanted to learn to sing or play piano. Maybe you’ve always been curious about 18th century history. Just find something you’re interested in and take some classes. It will be a lot of fun and it will get your butt off the couch and away from Dancing with the Stars.
It Works Even If You Can Pay Your Loans
Even if you aren’t having trouble paying back your student loans, you may want to get in school deferment anyway. It didn’t even occur to me at the time, but I took classes last semester and ended up with an in-school deferment. When I realized the option was available, I jumped!
I’m going to keep paying all my unsubsidized loans because they are still accruing interest (even though I’m not required to), but I’m leaving the subsidized ones alone. I’ll let my tax dollars pay that interest and I’ll invest that money elsewhere. You should too.
Enjoy all that extra room in your budget. You’re welcome.
Photo credit: DonkeyHotey
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Kevin McKee is an entrepreneur, IT guru, and personal finance leader. In addition to his writing, Kevin is the head of IT at Buildingstars, Co-Founder of Padmission, and organizer of Laravel STL. He is also the creator of www.contributetoopensource.com. When he’s not working, Kevin enjoys podcasting about movies and spending time with his wife and four children.
That really isn’t a bad idea. I would make sure that I paid the interest at least so the balance didn’t keep growing while working and saving as much money as possible. Then take some classes that might be helpful for future employment or even investing. The colleges here will offer real estate investing classes for example which could be useful.
It really depends on a person’s situation if they want to pay interest or not, but I agree on taking some kind of really useful courses. Real estate investing is another good idea!
We have our loans consolidated for 30 years at less than 3% interest. I’m not paying those bad boys off until I have to! Why?
It’s cheaper than my mortgage interest rate and if I die or am permanantly disabled, the loan is forgiven. The way I look at it is that it is like free life/disability insurance.
I like your decision. I’m keeping my low interest loans, but looking at paying off some of the high interest stuff (5 to 6.8%) soon. However, as long as the subsidized ones are deferred, I’d rather put that money in a savings account at 1%!
Half-Assed Economist,
Where did you go to have your loans consolidated for 30 years? Are they federal and private loans?
I can see this but at a certain point you just want to be done with it regardless of the low interest rate or whatever. Trent at the Simple Dollar also posted an interesting perspective in that eliminating debt, even low interest debt, reduces your cash flow, so that if you were to lose some or all of your income, your cash shortfall would be lower with each debt paid off.
I’d never say anyone is wrong to pay down any debt. However, paying down low interest debt when you could get a better return in a guaranteed investment like a savings account is not the most efficient use of resources.
I am looking forward to the day when I have no student loan debt though. Maybe someday soon.
It’s an interesting idea, deferring debt until you have a better ability to pay. Ultimately though, I’d want to get rid of the debt as quick as possible. After all, there’s no guarantee that someone will be better equipped to pay off a loan in a year or two. So that’s why I’d start to pay off the loans as soon as I could.
Still, it’s an interesting idea, and I wouldn’t begrudge anyone who did it. I just wouldn’t.
It’s definitely not for everyone, but it’s also an idea I had never heard of before, so I think it’s important to put it out there and give people the option.
This is a good idea. However, not everyone comes out of college indebted. I know I didn’t. I put myself through school working at my own company and my girlfriend is going to graduate with a surplus. I definitely think you should capitalize on all offers the government extends and also take advantage of scholarships. There is a lot of free money out there, but you just have to be willing to search for it and put some time and effort into it!
This is brilliant! Save money and further your education at the same time? Win win!
Another (admittedly extreme) option: have a kid! In Canada, your student loans are frozen as long as you’re on maternity/ parental leave, which lasts a year and can be taken by the mom or dad. Not too shabby! Though I suppose a kid requires a little more investment than a community college course, but still.
You crazy Canadians! Maternity leave is a year long!? That’s nice for the parents, but I’d hate to be a taxpayer or company there supporting someone just for having a kid for a whole year.
You silly Americans! Haha. Only 12 weeks leave? That just seems nutty.
Mat leave in Canada isn’t paid by tax payers or by employers, but by Employment Insurance, which every working Canadian pays into. The idea is that you pay into it when you have a job and withdraw when you don’t. It’s the same money you’d collect if you were suddenly laid off or had to take a leave of absence from work for another reason. I’m not sure of the limitations to regular unemployment, but for mat leave it’s 55% of your pay (to a maximum of $500 a week) for 52 weeks. I don’t have kids, but it’s definitely a system I can get behind. 🙂
I feel like I should let you know that yesterday I was wearing the Canada shirt I bought in Toronto. I love that place.
It’s interesting that employment insurance doesn’t come from the government, since it is mandatory. Seems like a tax to me, even if it isn’t going directly to the government. I love learning about the differences between the US and Canada. And I love how you all live in igloos. 😀
Ha! Well, I suppose it sort of is a tax, in the sensethat if you earn a paycheque, you have to pay into EI (self employed are exempt) but it’s totally separate from income tax, so the government can’t decide how to spend it (aside from like, raising EI rates so they can raise payments, which is always promised come election time but never happens). It’s sort of like Canada Pension, which is also mandatory to pay into. You pay it off every paycheque, but it’ll eventually come back to you.
I feel I should let you know that Toronto hit a record high (for June–it’ll get hotter) of something like 45 degrees C a week or so ago. I WISH I lived in an igloo. I think maybe they have them in the sticks. (I am glad to hear you liked your time in Toronto, though!)
12 weeks would be amazing…
First maternity leave…2 weeks, I was in graduate school.
Second maternity leave 5 weeks, I had not worked for the company a year.
Another great out of the box idea from Kevin! In this bad economic time, I’m sure there are a bunch of unemployed newly graduate that can take advantage of this idea.
I hope they do! I wish I had a bigger audience so these ideas could really be spread throughout the country and people can use them. Hopefully one day!
Deferment can be a great thing! I did volunteer work after graduating and was able to get them deferred for 2 + years. I have since then paid off my $20,000+ loans in just a few years (which goes against your belief that you shouldn’t pay off student loans so quickly). But for me it was an= psychological decision. It feels pretty darn good to have them out of my life!
Yes, I’m sure it is a nice feeling. We’ll see when I get there one day!
I did the same at the beginning of the year, it’s a great way to give yourself some breathing room while you figure out your career.
My husband and I are applying for IBR – income based repayment. It looks at your income and then calculates a reasonable payment. Every year you submit your tax return and it is re-adjusted. After 25 years of payments, if there is any balance on the loan, it is forgiven.
It is a great offer for any student to get financial support from any bank. I am a student of Mechanical Engineering of KUET. I need a loan to continue my study. But I don’t know anything about it. From which bank the credit is obtained? Anybody help me please.
This is really great advice! I took salsa dancing classes after law school, and now I have joined a competitive dance team, and I find social salsa dancing to be my favorite free-time activity! All because I wanted to defer my loans!