Student loan debt: Learning to save yourself
In late 2008, Lance Cothern reunited with his high school girlfriend Tori after several years apart. Lance was almost ready to earn a bachelor’s degree in accounting, and Tori was a sophomore studying nursing at a four-year public university at the time.
After a few years of dating, the conversations turned serious, and they started planning a future together. Unfortunately, unbeknownst to either of them, Tori had a problem that was much bigger than she had ever realized — a lot of student loan debt.
Because of some scholarships and work during school, Lance managed to graduate college debt-free. That freed him up to focus solely on his future wife’s debt, which eased the burden somewhat. However, as she pushed through her final semesters at school, they could only watch in horror as interest piled on top of interest to push her total burden up over $80,000.
The piling on of student loan debt
Yes, you read that right. Tori owed $80,000 for a bachelor’s degree in nursing. Right about now, you’re probably wondering how on Earth that happened.
Unfortunately, it’s a lot more commonplace than you might think. In fact, Tori’s student loan debt story isn’t unlike any of the other tired old clichés relentlessly portrayed by the media: the struggling social worker who ends up 100K deep in student loans, the humanities Ph.D. who is forced to live with her parents well into her 30s, or even Kasey O., the woman I wrote about last year who still owes over $95,000 for a bachelor’s degree in media arts and animation.
And just like many others who find themselves in this precarious situation, Tori didn’t really know how much she had borrowed until it was far too late. Part of the problem, according to the pair, is that she went to college during the credit crunch, which temporarily made it difficult to access the most attractive student loans. So, instead, she took out loans with high or variable interest rates, with her largest balance teetering around 11 percent.
“To make matters worse, none of her student loans were subsidized,” says Lance. “That means that her loans were charging her interest the entire time she was attending school. The interest would then be added to the principal of the loan and would incur even more interest charges over the course of her four-year college career.”
Gulp.
Looking for a way out
Just like the many thousands of students stuck in this unfortunate situation, Lance and Tori wanted a way out. They wanted to begin a life together, and they didn’t want to spend the best years of their lives struggling under the weight of nearly six figures of debt. After briefly researching income-based repayment and loan forgiveness options, Lance and Tori decided that their best option was to try to get out of debt as quickly as possible so they could move on with their lives. The prospect sounded daunting for sure, but they felt it was the best option they had.
The minimum payments on her student loans were around $700 per month, says Lance. “To pay off our debt, we lived frugally and used a very large percentage of our income to pay off her student loans, sometimes as high as 50 percent or more of our monthly income.”
In an effort to earn more, Tori picked up some extra shifts at work, and Lance switched to a less demanding job with higher pay.
“We had to decide that some of life’s conveniences would be put on hold while we paid the debt off,” says Lance. “We didn’t eat out often, we didn’t have smartphones, we had a very small entertainment budget and we made sure we weren’t wasting money on things that weren’t more important to us than paying off her debt,” he says. “Student loan debt had to be our No. 1 priority.”
And it worked. In a matter of three years, the two focused almost all of their attention on completely annihilating her student loan debt. And now, in their late 20s, they’ve earned the right to start their adult lives with an entirely clean slate.
A generation of debt slaves
There’s no longer a doubt that student loan debt places an enormous burden on today’s young people. With the average student loan debt now over $29,000, it’s no wonder that the average Millennial is struggling, and why USA Today recently referred to student loan debt as an entire generation’s ball and chain.
“For many 20- and 30-somethings, paying off the cost of college takes priority. Marriage, a house and family will have to wait,” wrote Hadley Malcolm in USA Today, after sharing one of the saddest charts I’ve ever seen. A few highlights:
- The percentage of college students who graduate with student loan debt was 65 percent in 2011, up from 46 percent in 1993
- 1 in 8 borrowers owes more than $50,000 for their education
- The unemployment rate for recent college graduates was 13.3 percent in 2012
- A whopping 16.9 percent of adults ages 25 to 34 reported moving back in with their parents in 2012
Note from editors: The Brookings Institution published a report that examined student loan debt between 1992 and 2010, and concluded that typical borrowers were no worse off now than they were 20 years ago. Interesting alternate viewpoint based on looking at the data differently…
Refusing to be a victim
But that’s what makes Lance and Tori’s story so intriguing. Just like so many other student loan debt horror stories, it has all the makings of a segment on the nightly news, but with a twist. Lance and Tori didn’t allow themselves to become a pawn in the growing student loan debt crisis. They took control of their situation instead. Here’s how they did it (and how you can do it too):
They used the debt snowball method
Made popular by Dave Ramsey, the debt snowball method for debt repayment requires you to focus your energy on either your loan with the smallest balance until it is paid off. Then you move on to the loan with the next lowest balance, and so on. “We paid off the highest rate first,” says Lance. “Then we went loan by loan and decided which was most risky due to things like private vs. federal and fixed vs. variable rate.”
They focused on earning more
One of the most efficient ways to pay off debt is to earn as much as possible. To do this, Tori picked up extra shifts at work and Lance focused on earning extra money on the side through freelance writing and starting a website, Money Manifesto. You can do the same by finding ways to make more money, whether it’s freelancing, dog-walking, or babysitting. The end result is all that matters.
They kept their expenses low
Earning more only works if you’re disciplined enough not to spend it elsewhere. To put as much money toward their loans as possible, Lance and Tori quit going out to eat and slashed their entertainment budget in half. They also lived a frugal lifestyle and went without many of the modern conveniences many of their friends had, like smartphones. Want to find a way to cut your expenses? Start by tracking your spending to see where your money is going in the first place.
Even though the journey was sometimes painful, the now debt-free twosome is glad they went through it.
“We learned a lot during the process,” says Lance. “We learned that we could be happy even without a lot of money to buy things that many people consider necessities. We learned you have to take action or things will never get better,” he says.
Lance and Tori’s story proves that paying off a huge loan is possible, even over a short time frame, if you’re willing to make it a priority. And, even though the steps they took might seem simple from a distance, the truth is, they’re the only ones that work. It doesn’t matter whether you’re struggling with a giant mortgage, student loan debt, or credit card debt, the story is the same. Short of winning the lottery, you have to put in the work. You have to go without. You have to be willing to make sacrifices.
One of the basic tenets of GRS (and one of my favorite sayings) is that “no one cares more about your money than you do“. And it’s true.
I’d also add that “no one else can save you.”
The painful truth is, sometimes you have to save yourself.
Are you still paying off student loan debt? What is your plan to pay it off once and for all?
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There are 116 comments to "Student loan debt: Learning to save yourself".
My girlfriend and I both graduated from Drexel University. I graduated with 70k in debt (my parents paid half, or it would be 140k) with a BS in Mechanical Engineering. My girlfriend graduated with 140k debt with a BS in Microbiology. It’s going to be a very long climb out of debt for us.
She actually ended up working for Drexel for a few years after graduating. Unfortunately the pay was only just enough to meet the minimums on her loans. Now she is working at another university while pursuing her Masters degree. The best way to get ahead in her field is with higher degrees.
I am working at a small engineering firm and am working like crazy to and get ahead and increase my earnings. I am fortunate that my field is in better shape than hers.
It seems all we do is work, sleep, and pay our loans. You would hope that two STEM majors could be helping drive the economy. We should be getting married, buying cars, a house, furnishing the house, ect. Instead all we do is pay our loans.
This is an honest question, but is there something about Drexel that encourages/normalizes this kind of loan size? Your story is the second I’ve heard recently of high six-figure student loans on degrees from Drexel. (The other was $180K on a graphic design degree with an expected salary ~$35K.)
What about a school like UPenn where the tuition is higher but I’d be willing to bet the tuition assistance and scholarship values make the net cost lower for those with demonstrated need?
Less competitive to get in would be Penn State where the tuition and fees are still less than half of what is listed for Drexel for in-state students.
Not to mention the PASSHE schools with less name recognition but whose in state tuition and fees are < 25% of Drexel's and which provide a perfectly adequate undergraduate education for most students?
Any of those options would seem like a higher value choice than 6-figure loans/cost you describe, so I'm a bit confused how Drexel seems to have convinced so many students that their particular institution is worth such a huge premium in price compared to the rank of the college and other nearby options.
I attribute it to a lack of knowledge at the time. I knew Drexel was more expensive than some schools but I didn’t realize how much tuition aid I was missing out on. If you compared the tuitions of Drexel and Penn (back then at least) Penn is more expensive. But the reality is like you said, assistance and scholarships are better at Penn, so the average cost is actually less.
I chose Drexel largely for the coop program. I figured the working experience would be valuable and that I could use the money earned during coop to help pay tuition. However, the coop program is actually part of the problem. You actually pay tuition while you are on coop and you go to school for 5 years instead of 4.
Around halfway through Drexel I realized how much debt was piling up, but I also realized how difficult it would be to transfer to another school due to Drexels odd schedule. So I just buckled down and finished it out.
I also picked Drexel because it was a school known for it’s engineering program and it was within a commutable distance from my parents house. So, somewhat ironically, two of the main reasons I picked Drexel were reasons of saving/earning money. I just didn’t know all of what I was getting myself into.
Also, tuition goes up every year, this is ridiculous. Students tuitions should be locked to the same as it was the year they enroll.
I wish I knew then what I know now and I would have done things very differently. I also wish that it wasn’t necessary for a 17 year old kid to know all that in order to make all the right decisions.
On the bright side of things, I have learned more about personal finance, and finance in general, than I would have if I had not been faced with this challenge. I will use the knowledge of finance and discipline of personal budgeting gained from overcoming student loans to swing the pendulum the other way and build wealth.
I’ve heard that Harvard and similar schools work hard to get the word out that they can provide major financial aid so while their sticker price is expensive that actual cost in many cases is much lower. But, still, the fact that their sticker price is so high causes many students to not even bother to apply 🙁
It’s also a shame that there aren’t enough advisors out there to help students and families navigate college costs and figure out which college is really the best value.
Right in the middle of this myself. Started at 80k, down to 60k at 25 and with any luck will have everything paid by my 30th birthday. Keeping expenses low became the largest help this past year. Right after college all I wanted to do was go to concerts and sporting events. Now, if I’m not getting paid to attend as a freelance camera operator I’m not interested.
Tori was lucky she met someone who was willing to help pay off her debt. I don’t think I could make long-term plans with someone with so much debt, nor would I feel comfortable placing that burden on someone else.
Have to agree, they had two people fully supporting each other and both working full time tackling that debt. I’m sure it’s harder for a single person because if nothing else there is no real external support you can rely on.
I don’t know. My husband had considerable student loan debt when we got married, and it didn’t phase me too much. We paid the minimum payments forever until we finally got serious and paid it all off. I’m so glad that I didn’t count him out strictly due to his debts. He is the love of my life!
And to be honest, I didn’t mind taking on his loans since I directly benefit from the higher education that caused them.
On the other hand, his debts were nowhere near 80K. If they had been, I might have felt differently.
I am a year or two from marrying my long-term partner, who just graduated law school with 180K in debt and no job offers (yet). It has made me anxious to tears on occasion, but my life will always (hopefully) be with him. It has never crossed my mind that he isn’t worth it.
My son will be a senior in h.s. this year and we are hoping he’ll go to the university my husband works at because he would get a tuition waiver. I’ve told DS that I’d rather he didn’t go to college at all than incur student loan debt. That said, it has crossed my mind that even if he doesn’t incur student loan debt, any future S.O. almost certainly will have it. DH thinks DS will eventually move out, but if/when DS and DSSO are together, I am guessing that moving back in with the ‘rents is a distinct possibility while they focus on paying down DSSO’s student loans.
I only hope DS isn’t taken for a ride by someone being with him for the help in loan payoff, then dumped.
I dunno. I have about 50K, but I’m working very hard to pay that off. If someone isn’t interested in me for that reason, then I’m not interested in that person. If mistakes I made when I was 20 is enough to scare someone off, then they’re not someone I want to date anyways.
I do understand not wanting to burden someone else, but really, we all have some kind of baggage in our lives. Some people have massive student loan debt. To me, it’s more important how a person is handling it versus how much they have.
I agree! Though I’m in my thirties so massive student loans or consumer debt would be a red flag for me because it suggests that he can’t manage money. (Our higher ed system and credit card rules are different than in the U.S.) I would want to make sure the two of us could work as a team financially.
I’m not going to lie — having one’s financial house in order is an attractive quality in a partner! Although, I think the numbers matter less than the knowledge and discipline to make smart money choices and learn from your mistakes.
I’m one of those people who didn’t get their act together until later in life. somehow that amazing salary that I was going to get was going to make it easy to pay off my student loans. Reality was quite the opposite. I went from hair-brained scheme to hair-brained scheme to painlessly pay off my loan until I came to the brink of bankruptcy.
At that moment, I discovered Dave Ramsey’s Total Money Makeover program and the You Need A Budget program . The 2 together plus a ton of reading of personal finance sites turned over 20 years of stupidity around in the following 5 years. Now I’m debt free with a very good financial foundation including retirement.
Near the end of my spiral, I would not date anyone because I did not want to burden them with my financial dilemma. I felt that I did not have anything to offer them despite my physical attractiveness.
Wow, great job getting it paid off, but stories like this make me even more glad that I chose an alternative route to college.
And what route was that, if you don’t mind me asking? 🙂
Yay, I love stories like this that show people taking control of their futures! In the UK you don’t have to pay off student loans until you earn a certain amount- they’re lent out through a government agency. When you cross that threshold the money comes straight out of your paycheck with other taxes. You can also get private loans and a student overdraft
I graduated last summer with £900 on a credit card. A year later and I’ve got the exact same amount in long term savings, I’ve managed to pay a deposit for laser eye surgery, buy a bicycle, and visit a friend in Austria. The only debt I have is the laser eye surgery payback, which works out at £45 a month and I can pay it off early if I find the means to.
All this, while living in an incredibly expensive capital city, and earning a take home pay that barely cleared 4 figures most months.
Still, I was a bit mortified when my OKCupid account listed my top attribute as “more frugal” by a long way than other girls my age!
Why be mortified–you should be proud!!
I remember you, Ru! Congratulations on graduating and nice to “see” you again 🙂
We did pretty much the same thing with my husband’s debt, which was unsubsidized at 8%. We probably went a little overboard because I threw up the steak dinner we bought to celebrate once we were done because I hadn’t had red meat in so long my body didn’t know what to do with it.
My parents made little enough that I qualified for subsidized loans, which didn’t accrue interest while I was in school. DH’s parents made more, but didn’t save the extra for college expenses, so they took out college loans that just got bigger and bigger while he was still in school and not paying them off.
It is much harder to get into trouble with subsidized loans– as parents we are planning on paying our kids’ entire tuition and basic board, but even if we weren’t planning on paying/ able to pay that, I would hope we’d be able to avoid unsubsidized loans entirely.
My story is similar. 43 days ago (yes, I’m still counting in days) I paid off the very last of what originally was $65,000 in debt. Over half of that was student loans. It can be a tough slog, but boy does it feel good to be debt free!
Good job! I’m right behind you. So are you going to throw a pay-off party?
In epic fashion – after going to the World Domination Summit I’m heading off to Bali to start a world tour backpacking trip. I’m a big travel junkie (and have to admit I could’ve paid off my debt earlier if I wasn’t simultaneously saving for this trip) and can’t wait to do some adventuring with the peace of mind that I have no debt payments to keep up with while I’m traveling.
Hell-to-the-yes! Congrats! Sounds awesome!
That editor’s note about the study of how people are “no worse off” with debt really should come with the caveat that that study is ridiculous. Please see this excellent breakdown of the issues with that study, which was done by The Billfold: http://www.theawl.com/2014/06/that-big-study-about-how-the-student-debt-nightmare-is-in-your-head-its-garbage
Mainly, the study is of head-of-households, so it does not include students who had to move back home due to debt. It does not include any people who are unable to keep up with their loan payments. It includes heads-of-household ages 20-40, which means that it includes many people who have had decades to pay down debt and acts like that’s all the debt they ever had. And it divides the amount of debt by the number of people in the household, so if one person has $60,000 in debt, but their two roommates have none, the study reports that they all have $20,000 in debt.
Thanks, Sara. I was going to ask about this.
The study also notes in passing that they’re concerned with monthly payment on debt while noting that “The average repayment term for student loans increased over this period, allowing borrowers to shoulder increased debt loads without larger monthly payments.”
500/month for 25 years is not just as bad as 500/month for 10 years.
I’m confused by the timeline of the first few paragraphs. The couple reunited when Tori was a sophomore. “After a few years of dating,” neither of them knew about the magnitude of her debt, but during her “final semesters at school,” they were watching in horror as the debt accumulated. Did Tori take seven years to finish her degree? That’s the only way I see this making sense.
If indeed she was able to take on $80K in debt without realizing it, that’s a problem with the system that needs to be addressed with something other than chirpy encouragement about debt snowballs and extra shifts and side hustles. Namely, how do we keep people from falling into this trap to begin with?
Student loans are shark-infested waters that are too dangerous for teenagers and young twenty-somethings to navigate by themselves with no preparation. Parents (and other adults with college-bound young people in your lives), guide your students in figuring out how their educations will be paid for. Look at the long game, not just the first year. If scholarships or savings run out after a few semesters, what’s going to replace them? Also, help your students formulate and follow a plan to graduate in four years (or fewer, if possible) – don’t just assume that they will.
We dated back in high school and then got back together her Sophomore year in college. She only took four years to graduate. The summer between her sophomore and junior year we sat down and looked at her student loan situation and figured out she had a lot of student debt. I don’t remember how much it was at the time, but we knew what it was at that time. What we didn’t know, for sure at least, was how much debt she’d graduate with. Interest rates were spiking due to the credit crisis and Tori had to take out loans to finish her college. Loans weren’t easy to come by, so we weren’t sure where we’d get the loans and what interest rates future loans would be at. At that point, we knew she’d be in a lot of debt but we weren’t able to come to a certain total figure until after she graduated and the interest was all accrued. That’s when we figured the total number owed of over $80,000. Many people look at the amount of loans you take out, but don’t calculate how much interest will be added on to that by the time you graduate.
Yes, good advice. But it flies in the face of the reality college students currently face. (full disclosure – secondary business teacher AND I have 2 college-aged children, one with a loan)
Anyone who says just work your way through school hasn’t looked at the price of tuition. Anyone who says take the alternative path isn’t paying attention to the statistics which show the bachelor’s degree is this generation’s high school diploma. Just budget and save, while good advice, is no longer enough.
While congratulations are definitely in order, how come no one addresses the elephant — namely a couple of families (and the Department of Education) are becoming very rich off the very backs of those who can least afford it? What’s so wrong with offering students loans at the prime rate and legislating better terms (like no one should be paying interest while they’re a full-time student) Parents do what they can, but educating students about loans and trying to save for education are mere drops in this bucker. At the end of the day it’s cheaper for me to get a car or house loan than it is to invest in my child’s education and potential earnings. How backwards thinking is that?
Anyway, off my soapbox.
That’s not an issue I chose to tackle in this post, but I agree with you 100%. I was disappointed that the recent legislation that would allow students to refinance their loans at today’s rates was struck down. I can refinance my car if I want, my house, etc. Why don’t students have the right to refinance their loans as they see fit? Of course, that doesn’t solve every problem. Something needs to be done so that students don’t end up in so much debt in the first place.
It seems that the system is somewhat predatory, much too large, and far too powerful.
I can get a boat loan for 1/3 of what my student loans are. And the argument that student loans aren’t secured debt like a boat, house, etc. is hogwash. The government guarantees the loans & they (unlike that boat, house, etc) can’t be discharged during bankruptcy). I’m not sure what secured debt is if it isn’t the deal the student loan companies get.
I was very disappointed with the most recent student loan debt — it was pushed through with the proud help of my senator, & I’ve been very vocal to his reps about what a bad idea it was. They, unfortunately, think there’s nothing wrong with massive interest rates because … they bought houses when the interest was 15%. They ignore that to buy a house you have to have an income & savings, that you’re not starting out your adult life with debt. And that their savings was also making a lot of money…And that they had a tangible asset at the end of paying off that 15%.
I’m confused as to why “the argument that student loans aren’t secured debt like a boat, house, etc. is hogwash.”
If I don’t make payments on a boat or a house, then the boat or house is repossessed and sold to settle the debt. You can’t exactly repossess an education and sell it if somebody doesn’t repay their student loan. This makes the loan riskier to the lender and therefore the interest rate is higher. I believe this is also a major reason why student loans can not be discharged in bankruptcy nor should they be. That’s how I see it anyways.
http://billmoyers.com/2014/06/17/the-37-senators-who-voted-for-millionaires-over-students/
@CCH: When the government “guarantees” the loan, it means that if the person defaults, the government will repay the loan (either in full or up to 97%, I don’t remember off hand). That means that the loan company does get the amount they paid back, which is exactly what happens when a loan company repossess (and then sells) an asset.
Especially when you have my parents. Who divorced when I was in elementary and encouraged me not to go to college. Why? Their view of higher education was that it was only for snobs, or ‘stuck up’ people. Their advice to me was to get an honest, ‘everyday joe’ job as a gas station attendant and not take on airs.
@TheGooch – I too was discouraged from pursuing higher education but for religious reasons. I was fortunate to have come of age during the dot com boom so finding good jobs with a now completely (and officially) meaningless Corinthian College piece of paper wasn’t an issue.
I’m making up for it now in my mid 30s…
This is a great story, but I’d like to see more focus on what students can do while in school to avoid racking up so much debt.
I work at an expensive private university and I’m often amazed at the students paying $1000+ in rent to live in the city when they could move a few miles out, get a couple of roommates and pay half that. The figures that colleges quote for room and board are often MUCH more than a student actually needs to live if he/she lives frugally. Many of the students I work with live much more luxuriously/frivolously that I do because they have access to tens of thousands of dollars of student loans. They get a huge reality check when they graduate and have to live on salaries of $40-60k.
Here in Boston, the Globe recently ran articles highlighting a massive problem with student apartments being overcrowded. Essentially, in order to afford the high rents, students take on far too many roommates. Here it is allowable for no more than 4 people who are not related to live together, but student apartments often have more than that. Of course, the rents run a lot higher than just $1K/month. It’s not uncommon to see a 3-bedroom in a student ghetto go for $3K+/month. With 6 students in a 3-bedroom apartment, they’re living as frugally as they’re able. They might find a 3-bedroom as low as $1500/month in the burbs but then they need cars.
And the city has problems with bad landlords who rent out illegal apartments to students. In addition, there’s also the usual issues with lack of maintenance, safety, issues, etc. My bf used to live in a grad student slum in Somerville (another city near Boston & Cambridge) with a number of fellow grad students. I didn’t know him when he was living there, but I’ve heard the stories. And, when one of the last of the original roommates moved out we went over to help her move. OMG the place was DISGUSTING!!!!!! But it was what they could afford 🙁
I think the student apartment costs and options vary by region. In Boston and Cambridge (and Somerville and Medford) we have a ridiculous number of students because of the crazy number of colleges and universities in the area. As a result, I imagine getting off-campus housing is competitive. After Boston removed rent control many years ago the rents in smaller cities further away went up, too. And, in recent years, it hasn’t helped that with fewer people buying homes the rents haev shot up quite a bit.
I graduated in May 2011 with ~$35k in debt from a private university in Chicago. I majored in double useless – History and Classical Civilizations. Cost of education was about $30k a year, but I received substantial scholarships, grants, and aid. After freshman year (07-08) I was financially independent due to recession family issues. Even still, I’ve defied the odds and have been employed full time since graduating.
However, a year after working in Chicago, I moved back home to Michigan. That required buying a car, adding about $18k in debt.
At 25, I’ve realized two mistakes I made:
1) Community or in state schooling for a year or two would’ve saved me tens of thousands. I am actually back in school for a second degree (Accounting) and almost laugh at the tuition/fees per semester I pay.
2) I fell for the certified pre-owned upsell. That over a non CPO model was a $1-2,000 premium, allowing me to get an utterly useless 5 year warranty from the manufacturer for a few grand more. I probably could have had an equally reliable car for $5-10k less.
I was making great progress paying off loans ahead of schedule until I decided to return to school. I am not taking out loans for my second degree – all out of pocket. I am still paying off my previous loans, although I qualify for deferment. I was on track to pay them off before 10 years, now I’m not so sure. I can’t really cut much out of my budget – I need to be making more, but I need a relevant degree to do so.
“Made popular by Dave Ramsey, the debt snowball method for debt repayment requires you to focus your energy on either your largest balance or highest interest rate loan until it is paid off. Then you move on to the loan with the next highest priority, and so on.”
Actually, the debt snowball (at least Ramsey’s method) is exactly the opposite. You pay off the *smallest* loans first. The idea is to keep yourself motivated and build momentum with “quick wins.”
You are correct! I wrote it backwards. Sorry about that. I would fix it but I don’t have access to the back-end of the site.
We’ll fix that, Holly!
I’m not sure she’s making the best choice available here. I mean, it’s her’s to make, but did she consider Pay as You Earn (PAYE) or Income Based Repayment (IBR) as options? It sounds like those would cover some, but maybe not all her loans, although she has the option of consolidating as many loans as possible into the Federal program. IBR or PAYE would limit her payments to 10% (or 15%, reducing to 10% in 2016) of her income over the federal poverty line, and forgive the entire remaining balance after 10 years of on-time payments for someone in a public service profession (which, as a nurse, just about any job she takes would qualify for) or 20 years of on-time payments for people in non-Public Service jobs.
I’m an attorney. I have basically a mortgage in Student Loans despite going to a state school and getting a TA-ship. It is what it is — tuition ballooned in the middle, I got sick, things happen. But IBR has been an amazing program for our family, allowing us to plan for retirement, have some financial stability and pay down my loans with a firm repayment date, so we’ll be able to help our own children through college. Statistically fewer than 10% of people who are eligible use it, so if I were this couple I would at least look into it as an option.
Except for the fact that you could be setting yourself up for a massive tax bill down the road with the debt forgiveness 1099-C depending on what your student loans are. Yes, no one knows how the government will handle this, but IBR is not necessarily all its cracked out to be. The public service program on the other hand would have been something worth looking into because that write off is currently tax free.
In the midst of all the talk on student loan lending, and how young people don’t know what they’re getting into, I will offer this counterpoint that not many people will mention when discussing the topic. Throughout my undergrad and grad years, I was routinely offered substantially more loans than what was needed to cover my educational expenses. And, unfortunately, I took the extra money every time. What did I do with it? I lived beyond my means throughout my 20s. Yes, I avoided credit card debt, but that was because every 6 months or so I got a check for $3K-$4K to do with what I wanted. Sure, some of it went to living expenses, but a lot went to shoes, concerts, trips and new cars. I was a complete idiot, but I take full responsibility for making those choices and the years that followed, paying on $65K over 8 years of loaning activity. I was lucky enough to lock in a 3.8% interest rate. So, while educating students on the reality of loans is important, we can’t just paint them as innocent sheep. I knew what I was doing….I just chose to ignore it. I know I can’t be the only one who has made such poor decisions.
I did something similar. I convinced myself that enjoying life then was reasonable because of how easy it would be because I would be making so much money later on, I wouldn’t know what to do with it. Sure my professional salary handsomely outpaced my previous jobs, but how foolish I was.
This set off an ah-ha moment for me though. I become resolved to never borrow against my future self’s prosperity. I always keep retirement contributions flowing. I don’t take out car loans under the guise of “oh I’ll be making more money next year so stretching a bit now is ok.” I attribute such behavior to the mistake of buying a brand spanking new motorcycle, a 2003 Yamaha R6 if you must know, with student loans. The motorcycle was stupid. Fun? Yes. But stupid nonetheless.
Yep, had I known then what I know now I’d have paid back whatever student loan money I hadn’t needed once the semester was over rather than stockpiling it.
“Lance switched to a less-demanding job with higher pay.”
Wow. Lance really sacrificed in that, didn’t he? Was that supposed to be “more-demanding job” with higher pay? Otherwise he should be thanking his wife’s student debt for getting him more pay and less stress.
Luckily for this couple, nursing and accounting are solid professions with good prospects for employment and steady income.
I think I’d do what they did for a few early years then once I’d paid off a good chunk I’d calm down and live my life as normal but with a manageable student loan payment. For me, I think living like they did for more than a year or two would put too much of a strain on a young marriage, especially if it was just one person’s debt. It could lead to resentment. Glad it didn’t in this case, of course.
This is a great motivational story! We also have a ton of student loan debt that we are working hard to pay off at this point in time! We are also putting up to 40-50% of our income toward debt repayment and expect to be doing so for another 2-3 years until we get the debt gone.
How is the wife financing her Master’s degree? Graduate students are no longer eligible for subsidized loans, so even if she’s making sure to take federal/Stafford loans this time, they’re not subsidized.
I assume this comment is directed at me? She is not the wife just yet, but for all intents and purposes she is.
She is taking out the max federal loans she is allowed. She uses all of the extra to pay down her highest interest private loan. She is making the interest payments on all of her deferred loans that are not subsidized and taking advantage of the deferral period to make the same total payments she would make without deferral, but instead focusing it on the highest interest private loan.
The goal is for her to finish her Masters at roughly the same amount of debt as when she started, however the average interest rate will be lower due to the reduction of the private loan that will have been replaced with the lower interest new federal loans.
Unfortunately she can’t refinance her undergrad loans while she is enrolled in grad school.
I would not have thought of this! Thanks for the additional info.
Every time I read a story like this, it makes me so thankful that I did not have to go through that. I chose an inexpensive college route, that was fully financed by my parents and a small amount from me working part time. My husband went to an expensive school, but his dad was a professor there so he got to go at no charge to him. Even though we don’t make a huge amount of money, we are able to live a decent life because we aren’t sending huge sums to student loans every month. I’m not sure what the right answer to this is, but there has to be a way of fixing this. Yes, the universities and student loan companies have a responsibility to deal with the ever-rising debt loads, and students/families also have a responsibility to know what they are getting themselves into and making choices that will keep them from being in $80k worth of debt. This whole business just isn’t sustainable in the long term.
This got me thinking….
One thing I don’t’ see talked about often on this topic is how the millennials, those of us saddled with debt and putting life on hold, will teach our children differently than we were taught. I quite frankly remember having conversations with trusted teachers/advisers who offered trite nuggets of advice such as: “Don’t worry about the loans. Find the best place where you can reach your full potential.” When the time comes I will spin this quite differently. And for good reason……….
Colleges are an interesting animal. There is a nearly unlimited money supply as students have access to near infinite financing (Amy F talks about this above). At the same time, colleges are trying to grab the business of whom? 17-19 year old high school students. So they engage in this massive buildup and lay that on the backs of students. I forget where I read it, but one author characterized this as the colleges engaging in a “luxury arms race.” I didn’t need access to the amenities my college offered. It was extravagant, unnecessary and ultimately a marketing ploy. I can’t help but wonder how much of my debt went to financing this extravagance.
My advice to my kids will be if you see a fancy student union with bowling alleys, arcades, movie theaters, etc; run! If you see a world class gymnasium facility, run! If you see a dining hall where you can grab a sushi lunch with an ocean view (::cough:: University of San Diego ::cough::), run!
I would fall over in disbelief if I saw colleges shift their focus to providing value instead of providing extravagance.
Anyone else? What message will you send to your kids/nephews/nieces?
Go to Podunk U! Work your hiney off while you are there. Nobody cares where you went to school, just what you learned.
And consider trade schools!
Ehhh not true in all instances. In the world of top tier MBAs, people do give a big hoot about where you went to school. For everyone else, school name/reputation matters very little.
I was in a similar boat when picking a master’s program. I was lucky enough to be admitted to a number of ivy league schools and taunted with scholarships that were the highest my program could provide (from about a quarter to half tuition, or not much considering tuition is at least $50k a year).
Attending the open houses, it was easy to get caught up in the name, the prestige, the opportunities, the beautiful campuses, etc. And the faculty really lay it on thick – “oh how lucky you are! oh what a great, priceless education you will receive! etc! etc!”
One of the most striking things about the open houses, though, was how the current students tried to sell the weekly happy hours – free beer! mingling with your fellow grad students! – to the accepted students. And all I could think was – what!!!! This program’s TUITION is $52k!!! These happy hours are not free!!
When I tried to discuss how terrible tuition is with other accepted students, the reaction largely echoed a sentiment of, “Well, what are you going to do? It’s Columbia/Penn/etc.”
I ended up choosing the program at my alma mater, a public school where I get in state tuition. It’s not a sacrifice – the program is one of the best in the country for my field and I got a scholarship. I just can’t believe all the people I met at those open houses ready to take out $100k in loans for TUITION ALONE for a field where your starting salary with a masters is not going to be more than $45k. It’s so baffling!!!
Totally agree on all points, especially the last one about the $100K in tuition to land a $45K/year job. I married a dreamer and I absolutely love her for coaxing me to do things my practical-minded self would never do. However, the concept of ROI is lost on the dreamers. She hit this same situation more or less on the dot. Colleges/Universities charging $100K in tuition for a field where they know graduates will be making $45K is morally reprehensible. Such can only be characterized as a lemon of an education.
Interesting to hear your experience with the hoity-toitiness of the ivy leagues. Free happy hours. HAHA! What a crock!
For strong students with poor or lower middle class parents, the elite school is often far less expensive than the local public school. And provides better outcomes. (Strong students with upper middle class or upper class parents do not reap the same benefits for going to a prestigious school as lower middle class and poor kids do, plus their state options will be less expensive than the elite privates.)
This drives my middle-class-brought-up self crazy.
Why? You don’t believe people with poor parents should get financial aid? I don’t understand.
That is not what I was saying but my beliefs are closer to everyone receiving the same aid regardless of upbringing.
Such a discussion, however, is mostly political in nature and does not really have a place in the comment section of a blog pertaining to personal finance. It appears that you and I have different opinions on the matter and I don’t anticipate further discussion would change your mind any more than it would change mine. So we’ll just leave it at that and get back to rapping about our joint enemy of student loan debt. Cool?
Wait? So you’re really saying that only rich people whose parents can afford it and are willing to afford it should go to Harvard? Even though going to Harvard doesn’t benefit them economically any more than going to a state school would?
While poor smart kids who would get huge amounts of economic mobility from going to Harvard instead of their state flagship shouldn’t be able to go? (Because nobody’s even going to loan 240K in tuition plus room and board for someone whose parents are at poverty line.)
There’s a big difference between equal opportunity and equal treatment.
I’ll bite. There are three families, and each of them have a student who got into Harvard.
Family 1 has an annual household income of $30k (parents work at McDonald’s), which is considered low-income. Harvard offers their child a full-ride in aid, with $5k of it loans. Child from family 1 gets to go to Harvard, and has to pay back $5k/year.
Family 2 has an annual household income of $90k (parents are both teachers), which is considered middle-income. Harvard says they can afford to pay $30k per year, and so Harvard offers $20k in aid ($10k of which is loans). Family 2 therefore has to pay $30k/year + pay back $10k/year (so essentially, $40k/year).
Family 3 has an annual income of $250k (parents are a lawyer and a general practitioner). Harvard offers no aid. Family pays $50k/year.
Harvard is a really attractive option for family #1, and is probably not too much of a hardship for family #3. But for family #2, they make too much to get substantial aid, but make too little to have the cost not matter too much. I suspect that’s what was originally meant.
$6,289.66. That is all that remains.
As of today my and my wife’s combined outstanding student loan debt sits at $6,289.66 of what was approximately $160,000 of student loan debt ($55K for me with a business degree, $105K for her with at teaching/language undergrad and half of a master’s). I say approximately $160K because I did not tally up how much capitalized interest hit us upon graduation. I was quite frankly too scared to do so. We anticipate making this a memory in the first quarter of 2015.
How did we do it? Through the type of self-denial that would make monks envious. Dave Ramsey gets this one right. We more or less followed his strategy with the big exception that we kept retirement contributions up in the 12-15% region the whole time. There is no silver bullet, just hard work.
So the question I want to pose is who has or will throw a pay-off party!? You can bet your bottom dollar we are going to have a pay-off party of epic proportions. I had a graduation party but believe you me, paying off the debt is *WAY* harder and takes way more focus than did making it through the partying and schooling that was college.
One payment at a time, that is the way to do it! Good for you, I hope you are very proud of yourselves. You’ve earned some serious bragging rights! 🙂
I’m 27, and I paid off the roughly $25,000 of student loans 2-3 months ago that I accrued in college. I saved up during college to pay off all the interest the day I graduated (at 21), and paid about $300-500/month in principal and monthly interest, and gosh, it felt good to finish them off. (For the record I’m on a roughly $25k-$27k gross yearly salary if anyone cares, and with my husband’s salary, we’re on a gross ~$50k yearly salary. That said, we got married kinda recently, so I did most of the work on the student loans by myself.)
The two biggest things I did to ensure success as far as student loans go are this:
1. Make sure when you graduate that the interest doesn’t capitalize. Make at least enough money in college to pay this much off. It means that when you start making payments, at least some will go to the principal.
2. The second is a guideline. You can live quite comfortably when you take out the amount of student loans as you expect to make in your first year starting salary. Possibly a little over that would be fine, if we’re pushing it. But generally speaking, first year starting salary is the general amount I think people can “easily” pay off.
I’d love to say that the monkey’s completely off of my back, but we’ve got to get my husband through a round of expensive (and travel-filled) interviews this November, so we may temporarily find ourself back in a little bit of debt, but that’s more a cash-flow problem than a savings problem.
So I have a slight dilemma, my wife has significant student loan debt, but is working in the public school system. She can get on IBR and pay around $250/month for the next 10 years and have her debt forgiven, paying a total of only about half of the total amount of the loans. Because it would be public service loan forgiveness, the balance would not be taxable.
Is it worth it to file taxes as married filing separately for the next 10 years or is it better to just attack the debt and pay it off? Attacking it would probably reduce our retirement savings by 50%.
The loan forgiveness would have the least payment by far and would probably have about a $10k impact on taxes over 10 years based on last years taxes. When we have kids, the tax burden will increase slightly, but if she claims them, her payment will go down, offsetting the tax increase.
For me, a social worker with a good chunk of debt working in a nonprofit, my husband and I are doing IBR. He doesn’t have loans, I do. We filed separately for the first two years of our marriage, but be warned that you cannot itemize your deductions when you do this. So, for us, after we got a great first-time homebuyer mortgage where we get 20% of our interest as a tax credit, we decided to file jointly this year. We’ll see how much it impacts my monthly payment, but it seemed worth it to be able to get a nice sized refund. That’s the problem, though, it’s so hard to do the math because you don’t always know what the numbers will run!
The statement about itemizing is incorrect. You are able to do married filing separately and itemize, but you both have to file the same method of deductions. One of you can’t itemize and the other take a standard deduction.
For those folks who work full-time in the non-profit sector, another option is the Public Service Loan Forgiveness Program–you make 120 payments and the rest is forgiven: https://studentaid.ed.gov/repay-loans/forgiveness-cancellation/charts/public-service
Got into student loan debt trouble earlier than most – graduated in 2000 with a useless lib arts BA and $75K in debt. This was just for tuition costs – I didn’t borrow for other types of expenses and worked to pay for things like books, housing, food, etc. Yes, I knew they were loans and I had to pay them back, but I don’t think an average 18 year old has a firm grasp of exactly how much money that really is and the impact it has on one’s future (and no one at these colleges wants to enlighten students to the impact because it would mean money out of the school’s pocket!).
What dreams and plans I had for my life after college went straight out the window in favor of taking any job I could get to earn enough money to meet the $1000+ monthly payments, in addition to paying for necessities. Thankfully, I was able to move in with family for a few years because there were many times cobbling together part time jobs when I could barely come up with enough cash for both the loan payments and the gas to get to work. To this day, I’m still working a job that means nothing to me, but that pays enough money to finally get clear of this mess almost a decade and a half after I got myself into it.
I spent the first 12 years chipping away at the balance slowly and doing a lot of feeling sorry for myself. A couple of years ago, I landed a job that included a healthy raise, and I really got serious about paying this off and getting on with my life. I know I got extremely lucky to get the job, but I’m proud of myself for making the hard choice to finally face this head-on and get rid of the debt. The comment in the article about “We learned you have to take action or things will never get better” is essentially what motivated me to start an accelerated payoff and what’s kept me going.
I began 2012 with $42K left and now have only $2800 to go. I plan to finish in the next few months. It’s involved a lot of sacrifice, a lot of saying “no”, a lot of having no social life. But after 14 years, there’s finally a light at the end of the tunnel.
“I don’t think an average 18 year old has a firm grasp of exactly how much money that really is and the impact it has on one’s future”
Amen! Intellectually, one understands what $75K is. However, at 18 one fails to grasp the gravity of the sacrifices required to pay it back later. That was my experience.
So I forgot to ask… how do you plan to celebrate your clearing this insurmountable hurdle?
The profound relief of finally being free of this anchor is enough of a celebration for me. I’m so far behind on other financial goals because of the resources it’s taken to pay this off that I wouldn’t want to spend any money celebrating.
Did anybody out there save money between ages 16 – 18 in preparation for college? My 13 year old who dog walks and babysits already has a couple hundred saved. More importantly, she has established financial goals and taken responsibility for her continuing education.
My husband graduated high school in 1987, but didn’t earn his bachelor’s degree until 1994. It took 7 years because he would work a year, save, pay a year’s tuition, take a half-load, work, work, work, pay another semester’s tuition. He lived at home while working and going to school part-time. His parents gave him nothing for college (even charged him rent while he was living at home – working and saving).
By 1991 he had finally scraped up enough money and credits to transfer to a state university five hours from home. From that point on he took full credit caseloads, PLUS worked 40 hours per week, plus paid for off campus housing. Graduated with zero student loan debt.
Although this was 20 years ago, I refuse to believe it’s no longer possible for any motivated young person who is determined to graduate without debt to do so. Too many people shrug their shoulders and embrace the status quo.
You don’t need “rich” parents to graduate without debt. Live at home, work while attending school, attend a community college the first few years. Save. Ride your bike and forego an expensive car, insurance, and gas prices while you’re a teenager. You don’t even need a damn smart phone!
As a recent graduate, it seems pretty clear to me that a student cannot work their way through college. But I understand that it’s not as clear to those who graduated in a different tuition/economic climate. A quick google searched produced this as the first result:
http://www.theatlantic.com/education/archive/2014/04/the-myth-of-working-your-way-through-college/359735/
As the article states with tuition numbers from MSU, “In 1979, when the minimum wage was $2.90, a hard-working student with a minimum-wage job could earn enough in one day (8.44 hours) to pay for one academic credit hour.” … “But today, it takes 60 hours of minimum-wage work to pay off a single credit hour, which was priced at $428.75 for the fall semester.”
The article is a really good read if you’ve got the time.
Respectfully disagree with the not being able to work while going to school. Both of my daughters worked full time while going to school. The eldest while getting her masters in business,(she went nights) and the other while getting her bachelors in nursing. Has nothing to do with minimum wage-more so how hard they were willing to work.
Or able to work.
I’m not entirely sure what you mean, how hard they were willing to work. If working a minimum wage job for 60 hours will only buy you one credit hour, and classes are 3-4 credit hours each, it would take a student 4.5-6 weeks at 40 hours/week to earn enough to pay for one class. Basically, a student would have to work full-time year round to earn enough for *just* tuition, books, fees, food, and housing/room and board not included.
Of course, most students don’t work full-time (and I would say, most shouldn’t) and most return home in summer, leaving their job near campus and having to try to pick up another for summer. Having a confluence of circumstances that allows a student to work full-time and pay school costs completely is not IMPOSSIBLE, but I also wouldn’t say it’s a viable alternative to the world of student loans.
Let me give you a different perspective on working through college.
I graduated in engineering with no student loan debt. I had help from my parents, they paid for my car and housing. I paid for tuition and living expenses. Not only did I accomplish that, I had a near $20k surplus at graduation.
When I started, I had part time jobs that would pay approx $200 a week to cover my day to day expenses and full time in the summers. I went to a state school with low tuition.
I worked alternating semesters at 40 hours a week as a coop from the time I started my 3rd year in school until I graduated in 4.5 years. I worked 4 of the 7 remaining semesters full time. Working in fall, summer, summer, fall. I took online classes during the 1st summer to knock out gen eds and did a half time load during my final fall semester.
I was taking 18 credits during the semesters I did attend school to not fall behind. I did front load engineering classes and mix engineering classes with gen eds later in the degree program to help balance the workload. I graduated at or with almost my entire class who would take 12 credit hour semesters and had an above average GPA. I paid back the minimal students loan I did have during my time working (not included in the surplus)
I did get paid very well during my time working, but the wage was not uncommon for engineering coops.
Bottom line was that I maximized my time and didn’t waste college partying and making excuses. My last semester of college was pretty harsh averaging about 13-14 hours a day during the week between school, commuting and working. I lived frugally and focused on my future. I did what had to be done to set up my future, which is what college is about. I couldn’t have done it without my parents help, but I would have been very minimally in debt even without their help.
You are an inspiration!
It’s nice to hear a story of taking responsibility for debts instead of whining about how much it sucks to have student loans. I am sympathetic for how crushing it can be.
I had loan debt. It was 2.5x my salary when I graduated. The only job I could find was in NJ . It was very expensive to live there, but my hometown choice were McDonalds and Burger King. I did Burger King until I got the NJ job. I am proud I paid off my loans, every cent.It took several years. Every time I wrote a check, I smiled. I am so grateful that someone out there enabled me to go to college. It has opened the doors and I far exceed my parents’ income and my siblings’ income now.
Aside from the frustration students have with their debt, I am even more irritated by parents who rationalize.
Rationalization 1: Save up by working as a teen. I worked while I was a teenager. I put 100’s of dollars away. However, it was considered a student asset. Student assets are assessed at a higher rate on the FAFSA compared to parental assets. It didn’t matter much and did nothing to reduce my loans really. It is unrealistic and ridiculous in this decade to expect a teenager to save enough even for community college by doing some side jobs as a 16-18 year old.
Rationalization #2) Work full time while going to school as that’ll teach them work ethic. Your student can do it with determination, but it puts that student on very unequal footing. They do not have the same time to study. They do not have the time for extra help at office hours. They can’t network and join study groups with their peers to the same level. A cold means they could lose both their job and fail a course and have to drop out. Add to it that students who are working these extra jobs often may not be as well prepared and may lack writing or study skills and you are simply piling on.
It is more realistic to expect the parent, with the higher earning potential, to save money and help the child they chose to bring into the world. I know not every one is capable of this and things happen. But, if you are a parent debating a bigger house or a new car or extra vacations, and you haven’t fully saved for your kids, you are contributing to the national debt, not putting your kids first, and generally having your kids start their professional life with excess baggage. Don’t expect them to be in a position to bail you out if you didn’t save for retirement!
Kudos to your daughter! It’s awesome to establish a savings habit when we’re young.
My parents had us start setting aside money when we got our first paper route. I had a paper route, then baby sitting jobs, then a part time job in high school (with increased hours during holidays and summers). My university program was too time-intensive for me to work during university, but I had decent part time jobs during the summers and most of my earnings went towards school.
At the time, our money went into savings bonds — but that was when interest rates were much higher!
It is easy to say, “working your way through college is a myth.” Consequently, these are the individuals who typically fall into the most debt. It is HARD to actually make a financial action plan and stick to it.
Here are current numbers for residents in the state of Wisconsin where I live. My alma mater- UW Whitewater – costs $7578/year.
Source: http://www.uwhelp.wisconsin.edu/paying/systemcosts.aspx
Even earning minimum wage starting at age 16 – one should be able to fund most of his/her college tuition expenses at a reasonably priced state university. Hell, I earned over $7000 per year twenty years ago (mostly from overtime during my 60+ hour a week summer job at Six Flags).
I don’t presume young people can pay for EVERYTHING these days, but $80,000+ student loan debt after 4 years is baffling to me.
I remember some of the fools I went to school with. One guy consistently qualified for, and therefore borrowed $8,000 per year (of course he was on the 5 or 6 year plan). His expenses including room and board were around $7000 per year. I asked him what he did with the extra grand. He said it was his “fun money”. I was speechless.
If you’re a nurse with a license, you can apply for the National Health Service Corps loan repayment program. You have to work in an under-served area. My wife applied and received $40,000 toward her debt. You have to commit to two years of working in that area, though.
Hearing the recent stories of such significant student loan debt, I must admit that I feel blessed to have finished school (Bachelor of Science at USC) with loans totally less than $30K. Even so, with an entry level job and entry level pay, it still took roughly 5-6 years to pay off my student loans entirely. Through my own personal experience, I really feel for student who graduated with 2 or 3 times the loan debt that I had. Hopefully, they had 2 or 3 times the salary!
Inspiring! The most disturbing aspect of this story, to me, is the lack of transparency about the loan terms. Don’t ever borrow unless you know exactly what you’re getting into!
Spend less and make more money. That is what I got out of this story.
I’m still carrying a student loan balance of a little over $40k at 31 years old (for 2 degrees). While 18 year-old me understood basic math, she did NOT understand how real life would work. Conceptualizing a $500/month payment when you still live at home with your parents is a lot different from actually moving out on your own and paying it back.
Once I started a job in my field and paid taxes, commuting costs, rent, utilities, etc., I realized how dumb I was to borrow so much money. My ideas about how much I’d be able to make were totally off base, and I found that even income-based repayment left me with a LOT of month at the end of my money.
I truly believe that many (not all!) 18 or 19 year-old kids lack the ability to comprehend how their student loans will impact them down the road. In most cases, they simply haven’t experienced enough life yet and have no basis to compare how much their loans will really cost them.
This. I agree wholeheartedly; no matter how frugal they may personally be, teens in general simply do not have the life experience with paying rent and utilities from their paycheck to gauge loan terms and really understand what it will take to pay it back.
DH and I are millennials, but we chose to move forward with marriage & 3 kids even while paying back around $80,000 in student loans. How? Living frugally, careful budgeting, and a whole lot of patience; one unglamorous sacrifice at a time. When we first graduated, we were paying about 1K each month out of 3K monthly net pay; as individual loans have been paid off, we diverted those payments to retirement savings, COL increases (i.e. groceries, gas, & rent – not restaurants or vacations), and the new expenses of having kids. We are down to the last $8,500 owed now and within two years we should be totally debt-free! Next we are looking forward to saving for a house. It has been a long 6-year slog, but after working through this as a team, I feel like we can do anything!
You do have to save yourself. At the end of the day you have to decide how much money education is truly worth. An ounce of prevention is worth more than a pound of cure!
Congrats! I have paid off $40k in student loans and have another $40k to go. My partner has $60k, although at the moment we pay separately. It’s hard to deal with, but I dream of the day we will be debt free. I’m currently side hustling my butt off to have mine gone in three years. Being at the halfway point is tough, but I know I will get there.
I attribute it to a lack of knowledge at the time.To me, is the lack of transparency about the loan terms. Don’t ever borrow unless you know exactly what you’re getting into!
While I am extremely happy for this couple I ask with ALL sincerity – what does a single person do to pay off debt? I feel like every article I read on here where the person in debt manages to dig themselves out (yes they work hard, they make sacrifices and its AWESOME that they accomplished it) the common thread I see is that they are in a long term committed relationship. So somethings are inherently- easier. Getting a 1 br or studio is half as expensive, groceries for 2 is only nominally more than for 1. Heat, electricity, water are also about half what they would be if it was one person. The truth of this is that they were able to essentially cut their basic of basics in half by being in a couple. I really enjoy this site- BUT I want to see a success story of someone who has managed to do this without being in a relationship. I’ve struggled with my own debt load for years- by myself. In the story above her minimum payments were about 700 a month – so are mine after IBR is applied…but I don’t have a second income (I work two jobs but the second job isn’t a living wage by any standard) to help spread that over or buffer it.
Apparently financial success is only available to people who are in relationships.
Um, some of us couples only have one income. Things like health insurance don’t get cheaper just because there’s two of you, and even the basics add up when you are providing them for a spouse & kids as well as your self. Sure being a DINK (double-income no kids) can be the easiest way to burn through debt, but the rest of us can still do it too! And singles have the advantage that you can cut whatever costs you want in whatever crazy ways you want, without having to negotiate it with a reluctant teammate.
Get a roommate? Or several? There are some things that might be cheaper by being in a relationship, but other things are significantly more expensive – especially since relationships often bring kids along. You can easily cut your rent in half. If you want to, cook together so you can share grocery expenses. Honestly, I would be able to save much more if I wasn’t married, as my husband is much more of a spender than I am.
Its hard to have a roommate in a studio.
So move. Preferably into a house or condo that is owner occupied. In my experience, the apartment complexes do not care whether you stay or not so the rent increases can be significant. Private homeowners however, usually do not raise the rent too much, as they would prefer a good stable tenant instead of maximizing the rent and having to search for a new tenant regularly.
I’m $2800 away from paying off my $75K student loan balance and I’ve been single the entire time. I was lucky enough to be able to live with family initially when I graduated because I was unable to afford even the most basic necessities and still make my minimum loan payments. As I gained experience and changed jobs a few times, my income slowly increased. I then spent about 8 years living with roommates. I’m now earning a high enough salary to have my place to myself and am almost done with my debt pay-off, but it’s been a 14-year slog to get here.
I think there are different types of challenges for the coupled up. For me personally, only having myself to account for is vastly easier than having to pay off this debt with a partner involved – if I want to save money and live extremely frugally, there is only me to consider, as opposed to having to be on the same page with a boyfriend or husband who may not want to live the same way I do. My furniture is old and much of it second-hand, but I live alone and it’s good enough for me. I don’t worry about a partner being ok with how the place looks. I eat a lot of quick, simple meals, like scrambled eggs for dinner type of thing that I probably couldn’t get away with if I were eating with a spouse, or had a family to make dinner for. Same with entertainment – I don’t go out much (I’m a major introvert and not particularly social). I can make that choice because it’s just me.
At any rate, I can vouch for big debt pay-off being doable alone, since I’ve done it. Helps to have a few good supportive family/friends type people in your life who believe in you and will encourage you.
I think the ideal situation is spouses who are on the same page financially and both high earners. Outside the PF blogosphere, I don’t know how common that actually is!
I know financially successful singles and single income families, and DINKs who struggle financially because one or both aren’t smart with money.
I don’t think we can make generalizations that being married is easier or being single is easier. It really depends on the people involved.
Please don’t be discouraged in your debt repayment simply because of your relationship status. Being married doesn’t necessarily make it any easier and in many cases it becomes harder – it all depends on the individuals. In my estimation, the only people who experience a sharp decline in per capita living expenses after getting married are ones who weren’t very good at frugality while single. You don’t get access to a second income without getting the second set of expenses. http://www.evolvingpf.com/2012/04/the-truth-and-fallacy-behind-two-live-as-cheaply-as-one/
Well said! We needs GRS for singles.
I totally feel what you are saying, Victoria! I pay off the minimum on my loans every month – that minimum happens to be 50% of my income. There is NO extra padding in my expenses and the remaining $45k I have from undergrad and graduate school is going nowhere fast. Meanwhile my work situation requires a car and is far from family who I could live with or get a free meal from every now and then. I do think, even if couples’ expenses are higher, that in general they benefit from S.O. support and consolidation of some costs at least. The snowball method doesn’t work so well when there is no fat to trim and few opportunities for additional work.
I thought this article from LinkedIn would fit in with this post’s theme about helping yourself:
http://www.linkedin.com/today/post/article/20140702183828-9522584-how-a-broke-trip-to-aldi-changed-my-life?trk=mta-lnk
But it also, near the end, points out that after you’ve overcome your financial hurdles it’s time to relax a bit 🙂
I think people really need to view their education as an investment in themselves. i.e. think about what their college will cost and what they will get out of it. I think there is always this mantra of “don’t worry, find yourself in college”. However, now it’s time for payback. For example if your goal is to major in a field that does not generate a lot of income, don’t go to an expensive school. Same thing goes with advanced degrees. if you’re going to go 100k in debt to go grad school don’t do it unless you’re going to make that back. It’s simple math…
Wow, I only have to pay 15, 000.
Here in Canada, our student debts is almost always less than yours in U.S. I wish good luck to everyone, since having student debts pleasants, but you will succeed,and I will pray for all of you.
If Lance and Tori take the money they were putting toward student loans and invest it in a moderately boring mutual fund like Vanguard Wellington (65% stocks, 35% bonds), they can likely achieve financial independence in 17 years and not ever have to work again. Not bad if they keep up the discipline.
See Mr. Money Mustache’s post entitled “The Shockingly Simple Math Behind Early Retirement”
for the details.
http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
Hey MysticalTyger,
Thanks for sharing! I’m definitely well aware of Mr Money Mustache, although I’m not sure we want to go down the same path they did. It’s early though and we haven’t made up our mind for sure. Thanks for sharing! MMM has a great site for people looking to retire super early.
Lance
I just paid off all my student loan debt. It was pretty straightforward in one way– I found a side job that made about $5000 a year, and did that job for ten years. On the other hand I definitely avoided having kids or buying a house because I was trying and focusing on paying off that debt. Was that a good decision for society to make my incentive to pay a $50,000 loan rather than have a family or buy a home? I know I’m happy to be debt-free and educated, but maybe socially there are better ways to get us there.
Our story is much the same. I managed to graduate without debt, despite no parental assistance, but my husband had $40k in debt, in 1999. We took out a separate loan at 6% interest (the student loan interest was 11%), then worked our tails off, and paid it off within a year. He took on a double teaching load as an adjunct. I had a full time job, but also a Sunday afternoon job, and I used all my vacation time to do several consulting projects. We lived on very little money, scraping our expenses to the minimum. It was worth it.
This is very inspiring. Great job, Lance and Tori! My husband also managed to graduate with no student loan debt, but I have more than made up for that. We’re looking forward to the time we can make that last payment to Sallie Mae!
Very interesting as usual, thank you 🙂
Student debts are awful, but here in Canada people owe less in general than students living in U.S.A.
Keep up the good work 🙂
Education should be seeing as a business deal. There are careers that will give you a $100,000 salary and there are careers which will land you a job in Starbucks as a barista. The cost of tuition is about the same. One year of Engineering cost the same as one year of Italian literature, but the return on investment is extremely different. If a person is going to study something that is not well compensated, that person should study part time and do it as the hobby that it is.