I have appreciated various aspects about Dave Ramsey’s baby steps, but what does he think about student loans?
Eighteen year olds aren’t privy to $300,000 mortgages, so why should they be able to take out thousands of dollars in student loans at such a young age?
Unfortunately, many of us were force-fed the narrative that we must do whatever it takes to pay for college at a young age. And that’s exactly what we did.
But now, we’re facing the harsh consequences of taking out student loans without a thorough knowledge of what to expect when we graduate (or don’t) and have to pay them off. Younger generations are forced to delay everything because they’re swamped with student loan debt.
If you want to get an education, go for it, but don’t overpay for it. In addition, don’t think making a little more will make your student loan debt disappear faster. Instead, dive deep into personal finance and learn every detail about student loans and how to pay them off effectively.
This article will explore the professional advice of Dave Ramsey about tackling student loans while also informing students on the basics of budgeting, payoff rules, and general advice on how to address their student loans. Let’s get started.
Dave Ramsey’s Best Ways to Payoff Student Loans
Dave Ramsey talks in detail about paying off debt, including student loan debt. For example, he advised this caller with $200,000 in student loans to get out of the career path she was currently in and get back to using her gifts because that’s where the money is for everybody.
Another example of his student loan payoff advice is the guidance he gave to this couple with $250,000 in student loan debt. He advised the husband to take on as many extra job opportunities as possible and work like a maniac while his wife was pregnant, as the more profound the sacrifice now, the faster they’d be out of debt.
According to Ramsey, the best way to get out of student loans and any type of debt is by using the debt snowball method. The steps to this method are as follows:
- List your debts smallest to largest
- Pay minimum payments on everything but the smallest debt
- Attack the smallest one with a vengeance — pick up extra jobs, extra hours, and sell everything
- Suspend investing temporarily and focus all your energy on the smallest debt
- Once that debt is paid, take the payment you were making on the smallest debt and any other extra money you can come up with, and throw it at debt number two
- Then when debt number two is paid off, take the payments from debts one and two and throw them at number three.
- Repeat this until all of your debt is paid off
Ramsey says that the average person who’s done the debt snowball method with force, intensity, and intentionality, has gotten out of debt in about 18-24 months (except for their mortgage).
There are other ways to approach paying off your student loan debt, like the debt avalanche method or the savvy debt payoff method. That said, it’s entirely up to you to choose what process works best for you and your student loan situation.
Next, let’s explore student loan consolidation.
Student Loan Consolidation
Student loan consolidation is taking smaller loans and combining them into one large loan with one monthly payment. The main benefits of student loan consolidation are a lowered payment amount and a lower interest rate.
Ramsey doesn’t approve of student loan consolidation outright. He confines his approval to a few circumstances:
- It will give you a lower interest
- You actually save money
- You go from a variable interest rate to a fixed interest rate
Student loan consolidation can be an advantage for you if you do your research. In addition, you must spend ample time calculating exactly how much money you’ll save if you do decide to consolidate to determine if it’s worth it.
With the best ways to pay off student loans and the benefits of student loan consolidation in mind, the next step would be to create a budget.
What’s the Best Student Budget and Student Worksheet?
The best student budget is unique to each person. However, a general student budget rule is making more and spending less. In other words, live below your means, focus on saving, and intentionally lower your debt.
You’ll also want to start saving early for student loans and the costs associated with college. For example, teens preparing to enter college can start their financial journeys early with a summer job. Taking on a summer job makes future education expenses like books, supplies, and transportation less daunting. It also gets teens in the habit of saving and budgeting early while also growing their financial mindsets.
The 50/30/20 budget or the budget down to zero are excellent options for student budgets. In addition, it’s a good idea to use a worksheet to manage your budget and track your student loans. Furthermore, manage your student loan and other debt balances with a debt payoff app to keep you organized.
Aside from a budget and worksheet to manage your finances, using a student loan calculator is also a good idea.
Is There a Best Student Loan Calculator?
A student loan calculator can help you estimate your monthly loan payments and how long it will take you to pay off your debt. Be sure you’re entering the most accurate information about your student loans to ensure you get an on-point result.
Check on your student loan servicer’s website to see if they have a debt calculator you can use. Or, here are four other excellent student loan calculator options:
- Federal Student Aid’s Loan Simulator
- Findaid.org’s Loan Payment Calculator
- Sallie Mae’s Student Loan Payment Amount Estimator
- Nerdwallet’s Student Loan Calculator
Ultimately, the best student loan calculator for you should be easy to access, use, and present the most accurate outlook of your student loans possible.
What about student loan forgiveness? Here’s what Dave Ramsey thinks about it.
What Does Dave Ramsey Think About Student Loan Forgiveness?
He thinks it’s a scam. By that, we mean the public service student loan forgiveness. If you have a disability, you’ve always been able to get your student loans forgiven—the same thing with getting defrauded by a school that goes out of business.
But he’s adamant about not waiting for public service loan forgiveness to save you and for logical reasons:
- About 98% of people who’ve applied have been rejected
- Staying in debt for ten years for a slight chance at getting a portion of student loans forgiven isn’t worth the risk
- The government is questioning if they’re even going to honor this program or not
- You’re essentially waiting ten years to start your life
- The requirements are complex and challenging to meet
All in all, Ramsey believes that if you’re going to pursue public service loan forgiveness and wait for the government to pay off your student loans, you’re screwed. Instead, it’s better to develop and commit to a plan that will allow you to pay off your student loan debt as fast as possible.
To conclude this article, let’s look at a list of student loan payoff rules to abide by.
Are There Any Student Loan Payoff Rules to Abide By?
Everyone’s student loan experience will be different. Therefore, you must factor in all that encompasses your individual life to accumulate a realistic set of rules to abide by when paying off your student loans.
Here are some general student loan payoff rules to get you started:
- Pay off your student loans as fast as possible — the longer you have student loans, the more you’ll have to pay. Interest adds up quickly. Don’t give it time to do so.
- Choose a payoff structure or routine and stick with it — there’s no bigger momentum killer than doing something once, stopping for a while, starting again, and doing that over and over throughout the years. If you aren’t consistent with your payoff routine, it will take you that much longer to get out of student loan debt.
- Sacrifice for a short period for a longer debt-free life — in other words, work your butt off for the next couple of years to fast track your payoff. Start freelancing and pull in some extra money by providing art or photography services, tutoring services, or another freelance service.
- Don’t be late — just don’t do it. Late payments can affect your credit score. You’ll also be on the hook for late fees. So, keep track of payments and take advantage of autopay.
Conclusion
There you have it. Six things to know about Dave Ramsey and student loans. It can be overwhelming, defeating, and downright sad when you can’t get a handle on your finances because you’re in so much student loan debt. However, by implementing some of Dave Ramsey’s advice and the additional tips above, you can take control of your student loan debt and fast-track your journey to a debt-free life.