Nothing feels better than your first paycheck as a new PA. Also, nothing feels worse than realizing how much of that needs to be directed to your student loans. When I graduated I quickly realized how much student loans were weighing me down and decided I needed to put maximal effort into paying them off. On day 1, I had $185,000 in student loans. By the end of my first year, I had paid off $53,000. Here is how I did it.
How to reduce your living expenses?
Rent is likely the biggest line item in your budget. Finding a way to keep this number low is the best move you can make to save more money to put towards your loans. Right after graduation, I elected to live with my parents for three months. They were nice enough to give me a significant discount on my rent payments. Though this was short-lived, it allowed me to save a few thousand dollars that went straight to my loans.
Once I moved out, I made a big sacrifice and chose to live in a 300 square foot apartment. This kept my rent payment under $900 despite living in Denver, Colorado. This certainly took some getting used to but was again instrumental in allowing me to save money to put towards my loans. I lived there for a year and my next place (550 square feet) felt like a mansion!
How did I make extra payments?
Most loan servicers will have a once-a-month payment. You may be able to save a little money by enrolling in auto-pay (look into this!). I was set up for a monthly payment that was a few hundred dollars above the minimum payment. I then went a step further. The auto-payment was in the middle of the month, but I then made an extra payment at the end of the month with whatever money I had leftover in my budget. Some months this was $250, but others it was $2,500. Making extra payments every month greatly accelerated my payoff.
Why did I delay my 401k contributions?
It is not uncommon for companies to delay access to a 401k until you have been an employee for one year. This was the case with my employer. For this reason (plus the fact that my loans were at ~7% interest) I did not contribute to my retirement accounts for my first year. If you have access to employer matching right away, I would contribute enough to get the match, but beyond that, weigh the pros and cons of loan paydown vs. retirement account contributions.
Why did I refinance my loans to a private company?
Coming out of school my loans were at an average interest rate of 7% with the federal government. I did not qualify for the public service loan forgiveness program, so it was an easy decision for me to refinance to a private company that dropped my interest rate to 5%. This saved me $3,700 in interest my first year alone. Those extra savings were yet another extra payment. Since then, I have refinanced two more times to an interest rate of 2.55%. Once you go private, you can refinance as often as you would like to get a lower interest rate.
What did I do with my bonuses?
As a new graduate PA, I was not earning a lot of bonuses. However, my compensation did include production pay. As I got more efficient and built my patient panel, my monthly paycheck dramatically increased. I directed all this extra money towards my loans as I was already used to living on the lesser amount. I did the same for any extra shifts I worked and call I took. Every extra cent went towards my loans.
Did you buy anything?
Right after I graduated, I went to Europe for three weeks. Though this was extravagant, it ended up not being overly expensive. By staying in hostels and taking buses, my friends and I were able to travel to five countries on a budget. Beyond this, I avoided any big expenses for the year. I kept my old car, avoided nice clothes, and skipped out on other big purchases. I would highly advise against purchasing a house, a new car, or a new wardrobe your first year. Delaying this will set you up for financial success right out of the gate.
Was it easy to pay off $53k in one year? No. Did it take a lot of sacrifice? Yes. Was it worth it? Yes. By doing this at the start of my career it allowed me to slow down my payback in the following years so I could focus on my retirement savings in tandem with loan payback. Plus, early on I had no lifestyle inflation (gradual increase in spending as your income grows) as I had been a student with a shoestring budget. It would be much harder to flip the script and do this five years into practice once some lifestyle inflation had entered my living expenses.
Looking back, I owe myself a big thanks for this early sacrifice. Do you feel like you can make these sacrifices? How much did you pay in student loans your first year?
Are you unsure about what do to with your loans?
For me, the decision to refinance to a private loan servicer was easy. For others, this may not be the case. The PA Blueprint has a whole chapter on student loans that will help you understand your options. For those of you that want a personalized plan, we have partnered with Student Loan Advice. Andrew will give you a complete breakdown of all your loan options, their various costs, and direct you in the application processes. This is a great service for those looking for a coach to walk them through their loans!