The Millennial Money Problem No One Talks About

There are countless headlines about how student loan debt is a national crisis, but if you’re facing huge monthly payments, it probably feels a lot more personal. The New York Times reported in the fall of 2015 that 41 million Americans owe $1.2 trillion in student loan debt, and according to Pew Research Center, millennials on average owe $27,000. This isn't a problem facing a small number of Americans; it's likely that your friends, coworkers, and the guy sitting across from you on the subway are all feeling overwhelmed by student loan debt.

Unfortunately, this debt is holding millennials back from reaching major milestones. Want to change careers, get married, start a family, buy a house? It's a whole lot harder when you're bogged down with big monthly loan payments and stagnant wages. We earn less than our parents did at our age, despite the fact that more of us went to college.

It's downright depressing, and you can feel like you don't have a future because you're bogged down paying for your past. But it's not forever, and there are ways to make your payments more manageable.

I teamed up with Refinery29 financial expert Priya Malani to get her best advice for tackling crippling student loan debt. The bad news first: You're probably going to have to make some sacrifices to get rid of this debt. But there's good news: You won't be making these sacrifices forever. And, as long as you make those monthly payments on time, most banks consider this "good debt," like having a mortgage or making car payments. You're building your credit as you go, and that's never a bad thing.

Ahead, Priya and I offer 14 steps for making your loan repayment as painless as possible, so you can get the debt paid down and move on to other things.

Note: We’ll also be doing a Facebook Live session on Thursday, May 19 at 3:00 p.m. ET, where we will answer all the awesome student loan-related questions you might have.

Illustrated by Abbie Winters.
Before we even dive into paying down your loans, let's start at the very beginning: What kind of loan(s) do you have?

Federal: These loans are issued by the government and typically have a lower fixed-interest rate. Within the federal loan category, there are: Stafford subsidized loans (the government pays the interest that accrues while you’re in school); Stafford unsubsidized loans (you have to pay the interest accrued while you’re in school — but you don’t start paying for that interest until after graduation); and Perkins loans (with a low interest rate, for students with substantial financial needs).

Private:
These loans are issued by a bank and are not need-based. They tend to have higher interest rates that are usually not fixed, which means the amount you pay for your loan can fluctuate over the years. Often, you have to begin paying back private loans while you’re still in school.

Going forward, when discussing repayment options, we will simply refer to the loans as “federal” or “private.”
Illustrated by Abbie Winters.
When you have loans from multiple lenders, you might want to take some time to consider the best way to pay them off. Everyone has a different way to approach paying off their loans, but two popular methods are the avalanche and snowball repayment plans.

With the avalanche method, you pay the minimum monthly payments on all your loans. If that total payment is less than 20% of your income, you use the remaining money to make more than the minimum on the loan with the highest interest rate, which will allow you to pay it down more quickly. Once you pay off that loan completely, you move on to the loan with the next-highest interest rate, and so on, until all your loans are paid.

The snowball method focuses on paying off the loans with the smallest balance first. So, like with the avalanche, you'll make the minimum monthly payments on all your loans, and then take anything extra to pay down the loan with the smallest balance.

The snowball method can be the most motivating repayment plan, as it slowly knocks out loans completely. But the avalanche is the smartest from a financial standpoint, because you'll be paying the least interest in the long run. The third option is consolidation, which we will tackle later in this slideshow.
Illustrated by Abbie Winters.
Now that you're more familiar with your loans and you've decided on a repayment method, it's time to tackle your debt. First things first: Set up a payment plan and stick to it. Many loan providers will lower your interest rate by 0.25% if you enroll in their auto-pay programs. It doesn’t sound like much, but it can add up over the life of your loan. Plus, it’s nice not to worry about logging in and making those payments each month.
Illustrated by Abbie Winters.
Let’s keep on the easy train. When you start paying off your debt, the lender will give you an end date. WRITE DOWN THAT DATE. It can feel like you’re going to be paying off your student loans forever, but that’s simply not true. And now, you know the exact date you’ll become debt-free. Even if it’s far, far into the future, you’ve got your eyes on the prize.
Illustrated by Abbie Winters.
If you work in certain public-service jobs, you might be eligible for loan forgiveness. For the most part, these programs only cover federal loans. (For instance, if you join the Peace Corps., you can have 15% of your Perkins Loan forgiven for each year of service.) Student Loan Hero has a fairly comprehensive list, which was updated in June 2015, of jobs that qualify. If you think you might be eligible (i.e. you work for the federal government or a non-profit, or you are a teacher, a doctor serving the underprivileged, or are working for AmericCorps), it’s worth doing some digging.

One small note: If you do end up qualifying for a loan-forgiveness program, you may still need to pay taxes on the amount of loan that's forgiven (whether it's $10,000 or $100,000). While that can be a big one-time tax bill, it's still better than paying your full loan balance.

If you aren’t so selfless, there’s a growing trend of big businesses offering to pay down their employees' student loans. Fidelity announced this spring that it will pay $2,000 per year toward student loan repayment for employees at management level and below. Unfortunately, only 3% of U.S. companies offer such a sweet perk, but it’s definitely something to ask about if you’re looking to make a job change.
Illustrated by Abbie Winters.
What does it even mean to refinance? It’s all about interest rates. According to Priya, if your loans carry a high interest rate (5% or higher), refinancing allows you to obtain a new loan at a lower rate, which you then use to pay off your older, higher-interest-rate debt. Interest rates are still very low these days, so this can be a big money-saver (we’re talking about thousands of dollars over the course of your loan). You can refinance with the federal government if all your loans are federal. If you have a mix of federal and private, it’s best to work with a private lender to consolidate your loans (which we will tackle later in the slideshow).

You can refinance at any point in your loan-repayment journey, but there are some questions to ask before you take the plunge:

1. Do you have a federal student loan? Are you enrolled in a loan-forgiveness program or an income-based repayment plan? If yes, you might not want to refinance, because you’d lose both of these perks.

2. Are you struggling to make your minimum monthly payments?

3. Do you have a high variable interest rate? If you’re paying 5% or higher in interest, refinancing could definitely help you.

4. Would you like to remove your co-signer from the loan? Refinancing would help you do that.

Once you determine that refinancing is the right option for you, you’ll want to do some research to find the best lender. Every day, there seems to be another start-up, such as Earnest and SoFi, trying to tackle the student loan problem. (Both of those companies offer amazing benefits to their customers, plus easy-to-navigate refinancing processes.)

Nerdwallet and many other sites offer refinancing calculators, so you can see just how much you’ll save over the course of your loan. That number should be enough to get you off your butt and on the computer to find the best refinancing option for your loans.
Illustrated by Abbie Winters.
After you’ve done all the hard work of figuring out if you qualify for loan forgiveness (or choosing a refinance option), we’ve got another easy fix for you. Instead of paying down your loan once a month, pay half your monthly payments every two weeks. This way, you end up sneaking in a full extra payment every calendar year — lowering your principal faster, and therefore paying less interest over the course of the loan.
Illustrated by Abbie Winters.
Student loans are no fun. And putting every extra bit of money toward paying down this debt is definitely the worst. That’s probably why so many of us feel like we can’t achieve major milestones because we’re saddled with these big monthly payments. It can be tempting to want to skip a payment from time to time. DON’T DO IT. Being disciplined and paying on time and in full each month will guarantee you can pay off these loans in a manageable time frame. If you blow them off, you’ll end up paying more in the long run with penalties and late fees. Plus, defaulting on your loan (missing two or more payments) can be terrible for your credit score. So settle on a plan that’s manageable for your budget, and stick with it.
Illustrated by Abbie Winters.
Want to pay off your loans faster? Put some of the extra money that comes your way toward your debt. If Grandma sends you $25 for your birthday, if you get a sweet tax refund, if you’re rewarded with a year-end bonus — put at least some of it toward paying down your loans. Priya recommends an 80/20 split — 80% toward the loan, 20% for fun. If you did get that $3,120 tax refund (which is the national average in 2016), 20% is a tidy $624 you can spend on anything you want (or, um, add to your emergency fund). And that additional $2,496 is a nice chunk toward paying down your overall loan.
Illustrated by Abbie Winters.
According to PayScale, 75% of people who ask for a raise get one, but less than half of Americans have initiated the (somewhat awkward) conversation with their managers. Sure, you might not get one if you ask, but if you DON’T ask, your chances get even smaller. (Not sure where to start? Read this.)

Once you negotiate the raise, DON’T SPEND IT! (Sorry.) Put all the extra money toward repaying your debt. Chances are, you’ve gotten used to living on your old salary, and once you get a raise, you’re likely to mindlessly increase your spending. Instead of spending that extra dough on something unimportant (unless that extra dough is going toward retirement or an emergency fund), increase your monthly loan payments, so you can pay down your loans faster.
Illustrated by Abbie Winters.
Priya is a big fan of the reverse budget (we’ve talked about it before here). Basically, you build your budget around your spending habits, rather than the other way around. And Priya recommends you set aside 20% of your net income to paying down debt. You should do this even if 20% is more than your minimum monthly payments.

Why do we push that 20% number so hard? Well, Priya offers this example to show you just how much you’ll save over the course of your loan if you stick to a 20% budget.

Imagine you’re making $55,000 a year (putting you in the 20% tax bracket) and you’re paying down a $25,000 loan with a 5% interest rate.

Your standard monthly payment would be $265 over 10 years (which means you’ve spent $6,819 on interest over the course of your loan).

If you’re putting 20% of your income to the loan, your payment would be $733 a month. You’d pay down the loan in 3.1 years and only pay $2,021 in interest.

That’s nearly $5,000 in savings!

If you’re having a hard time setting aside 20%, take another look at your flexible spending budget (i.e. Netflix, buying lunch every day, basically anything fun you can live without) to see how you can carve out extra money so you’re setting aside the full 20%. Does your budget allow you to allot more than 20% to paying down your monthly debt? Before you start making bigger monthly payments on your loans, you should be setting aside 10% to build a healthy emergency fund as well as maxing your employer’s match on your 401(k).
Illustrated by Abbie Winters.
If you’re living paycheck to paycheck, and it seems impossible to ever find any additional money to pay off your loans beyond the minimum payments, we recommend you check out the app Digit. Priya recommended it last fall, and a few Refinery29 employees swear by it (one has saved $200 since December; another has saved a whopping $1,000 since January).

The app automatically siphons money out of your checking account and puts it into a cloud-based savings account. Once a year — or as frequently as every few months — you can withdraw this money and use it to make a lump-sum additional payment to your student loan debt. It feels painless because you don’t even realize the money is missing along the way.
Illustrated by Abbie Winters.
Unemployment is tough, but in this crazy economy, it happens. Thankfully, you can get help if you find yourself out of work and struggling to make the monthly minimum on your loan payments. If you have federal loans, you can either defer your loans (which means you don’t make payments for a certain amount of time — and sometimes the government will cover the interest accrued during this period) or you can apply for forbearance (again, you get a reprieve, but for a shorter amount of time and no chance of the government covering the loan’s interest). Both require you to show proof of hardship, but can definitely lessen the burden if you’re in a tight spot. For more information on how to apply for a federal loan deferment or forbearance, click here. (Note: If you've refinanced your student loans, you may no longer qualify for deferment or forbearance.)

For those of you with private loans, there’s less flexibility, but you should check with your provider. For example, if you’ve refinanced through SoFi or Earnest, both allow out-of-work clients to delay payments for up to three months at a time (for 12 months total). SoFi also has a career-coaching program to help you get back on your feet ASAP.
Illustrated by Abbie Winters.
If you’ve got federal loans and private loans from more than one provider, it can be a pain (not to mention confusing and sometimes more expensive) to make multiple monthly payments to different places. Consolidation is one of Priya’s favorite tips to simplify your financial life. But you’ll want to do a little research to make sure consolidation actually makes financial sense. Sometimes, when you combine all your loans, you’ll end up with a higher interest rate, which means you’ll be paying more over the course of the loan. Sure, it might be more simple only having one monthly payment, but not if it’s costing you more money.

A number of sites can help you figure out if consolidation is right for you, including SoFi, Student Loan Hero, and Nerd Wallet. The federal government also offers a consolidation program if you’re only looking to combine your federal loans.

For those of you who are married, unfortunately, you can’t team up with your spouse and consolidate all your loans into one tidy monthly payment.