Conquer your student debt. Refinance now.
Wanting to become a stay at home parent when you have student loan debt can feel like an impossible dream. And it’s a situation that many people in our generation will likely wonder if they can make work. In 2018, 69% of students graduated with student loans. With student loan repayment stretching into prime years when some want to start families, is it even possible to stay home with kids when you have that debt?
What can seem like a tough situation, can actually become a financial possibility with a few changes. There are three main areas to focus on when exploring your options.
Lower Your Monthly Payment
The first thing to consider when looking at your financial situation is your monthly loan payment. There are a few options available that would allow you to reduce or completely eliminate that monthly expense.
Student loan refinancing
Refinancing can help lower your monthly payment in two ways: it can decrease your interest rate and it can allow you to lengthen your repayment period.
Refinancing to decrease your interest rate based on your credit score will reduce the amount of money you’re charged monthly in interest, but lengthening your repayment period will likely lead to you paying more in interest in the long-run. However, if you’re making the decision to stay home from a lifestyle perspective, the long-term cost of your loans might not be as important to you as having manageable monthly payments.
Refinancing was the right answer for Nathan Hamilton, Personal Finance Analyst at The Ascent. After graduating from business school with $152,000 in student debt, he was facing a monthly loan payment of over $2,200. Realizing that monthly payment would be tough for him and his wife to pay, he decided to refinance to a lower interest rate and brought his monthly student loan payments down to under $1,300. This lower payment meant they could save for a home and eventually, allowed his wife to stay home full-time when their son was born. “Refinancing has been the biggest needle mover to cut our monthly expenditures and is part of the reason why my wife has been able to stay at home since our son was born in 2017.”
Income-Based Repayment Plan
If you have federal student loans, an income-based repayment plan is an option to help reduce your monthly loan payment.
Under an income-based repayment plan (IBR), your monthly loan payment is calculated using your income and your family size. It also uses an extended repayment period of 20 or 25 years. Monthly loan payments will change based on family income and you’ll be required to recertify your income annually.
While an income-driven repayment plan can decrease your monthly payments, there’s also an opportunity for stay at home parents to not make any loan payments. Joshua Cohen of the Student Loan Lawyer, explains that there are options to not include the working spouse’s income as part of the calculation, which would mean the stay at home parent doesn’t need to pay anything towards their student loans while they aren’t earning income.
Extended repayment options
If you’d rather not apply for an income-based repayment plan, but you still want to lower your monthly payment on your federal loans, you can apply for an extended repayment plan. With an extended repayment plan, you can extend the loan term from the standard 10 year repayment, up to 25 years.
Extending your loan term will cost more in interest over the life of the loan. But if it enables you to stay home, that might be more important to you than the overall cost.
Reduce Your Living Expenses
Making the decision to forgo a paycheck and stay at home can be tricky, especially when you have credit card debt or student loans. But it’s not impossible to stay home and become debt-free. As a stay at home parent, you can save on more than just daycare costs. There are related commute costs, wardrobe costs, and work lunch costs, to name a few.
There’s also the opportunity to look for creative ways to save.
Valencia Morton, the creator of the Millionairess Mama and stay at home mom, realized that clothing costs for her daughter were adding up, so she looked for creative ways to save. Her daughter began baby modeling for children’s clothing boutiques—this project not only earned her daughter a free wardrobe (she was able to keep the clothes as part of the arrangement) but she now also has professional photos of her daughter’s early years that she cherishes.
Though her loans are now paid off, Valencia still looks for opportunities to keep costs low. She’s currently looking at purchasing a duplex so they can own a home while still bringing in rental income. There hasn’t been one silver bullet with saving money. Instead, Valencia says she “looked for ways to lessen the expenses in all areas of our life.”
While spending less is certainly part of the equation when you stay at home, there are also more opportunities than ever for parents to earn an income while still spending the majority of their time with their children.
Rachel Angell, a writer for Effortless Insurance, wanted to be a stay at home parent with her son when he was born. But she knew that because of her loans she’d need to take on part-time remote work to support her family. She took a medical transcription course and immediately upon earning her certificate she was able to find an opportunity to work from home with a flexible schedule.
Figuring out the finances when you decide to stay at home is tricky—and is made even trickier with student debt. But there are options to help you manage your loan payments and make the lifestyle change you’re looking for.