Let’s talk about Student Debt: Part 1: Digging In May 24, 2012

Let’s be honest.  EVERYONE is talking about student debt right now.  With the big article in the Degrees of Debt series in the New York Times, to in-depth discussions on Marketplace Money, to the latest political grandstanding (on both sides) about keeping Federal student loan interest rates low, it’s hard to escape the discussion.

It’s not a new issue.  But every once in a while, everyone starts talking about it again.

So, here’s my story, and my thoughts, on the subject.

When I was getting ready to go to college, I didn’t really know how I was going to pay for it.  I was encouraged by friends and family to go to MIT, even when Rutgers was offering me full tuition (I’d still have to pay room and board and other expenses).  MIT seemed like a better fit for me, and I wanted to go.

My parents had socked some money away in some mutual funds for my 2 sisters and me, but it was not enough to cover all of us.  We filled out the FAFSA forms to see what sort of financial aid we could get.  I was eligible for a small federal loan (not sure if it was subsidized or unsubsidized), and for “work study”, which really meant that I was able to get a job from MIT to earn a little money.  (I worked at the MIT Libraries for a semester or so in the back rooms processing new books).  I had a few scholarships I got through my dad’s work, and a few other tiny merit-based scholarships awarded to students at my high school, but that’s about it.  In retrospect, I really should have tried harder to find more scholarships.  Any amount would have helped.  I also didn’t take all the AP exams for my AP classes, because I misunderstood the way that MIT accepted AP credits.  Oh well.

So, to make up the difference between what aid/need-based discounts I received and the actual cost of going to MIT, I had to take out private loans.  Yep, those loans that they tell you to try your hardest to never have to take out.  There just wasn’t another option.  As a middle-class family, we were doing well enough that we couldn’t get a lot of  need-based financial aid, but we weren’t loaded enough to be able to pay upwards of $160k to send me to college for 4 years.

So, each year, I took on private student loans.  My parents did co-sign the loans.  But it built up during the 4 years at college.  And so when I graduated, I had $57,701.00 in private loans, and $18,218.61 in federal loans.

Honestly, like many of the people talking about student loans, I didn’t really know what I was doing.  I took on the debt a bit blindly, and there were ways I could have taken on less debt.

How could I have taken on less debt?

• I could have gone to Rutgers instead of MIT.  I don’t think Rutgers was the right fit for me, but had I gone there, I’d have had tuition covered due to in-state tuition+ my GPA/SAT scores.  Final verdict:  Going to a public school would have been cheaper, but if I had to do it all again, I would still go to MIT
• I could have looked for more scholarships.  I have a feeling there was plenty of money out there that I could have tried to get, but didn’t really look.  Plus, I didn’t really think to look for more scholarships after freshman year.  Final verdict:  Glad I got a few small awards, but I should have tried harder to find funding for freshman year and beyond.
• I could have tried to earn more AP/college credits before attending college.  Though MIT wasn’t very big on accepting outside credits, had I gone to another school, getting college credits through AP or a cheaper school would have helped lower costs.

There are lots of things I could have done going in.  But I’d like to think that some of my decisions helped me slowly dig my way out of debt.  I’ll talk more in another post.

What were your best and worst decisions when it came to paying for college?  What did you wish you had known?  What are you glad you did?  What advice would you give to high schoolers planning for college?

Goodbye, Sallie Mae! May 5, 2012

Well, I just clicked a button on the Sallie Mae accounts page that should have my federal student loans PAID OFF IN FULL!

It feels really awesome.

The loan started out as a bunch of federal student loans that I consolidated back in 2006 (after I graduated).  So they were serviced by the same bank that my private student loans were at.  At some point last year, Sallie Mae stepped in and took over as the company in charge of my loans. The Sallie Mae accounts page made me want to pay off my debt even faster, since they showed the daily accrued interest.  I was getting sick of it!

So today, I paid them off.  I’m no longer paying 3.5% interest on any debt.  Woo!

Of course, I still have about $29k in private student loans (thanks for being so expensive, MIT!), but they’re at a pretty sweet rate of 2.75%.  But I’m still coming after those!  And that’s much better than what I graduated with:  more like $70k at 8.5%.  But I’ve been aggressively paying that down, too!  Luckily, that loan’s rate was pegged to the Fed Rate, and (unluckily for those of us with savings accounts) the Fed rate has dropped like crazy since I graduated.  Plus I enrolled in all the programs that the bank had to offer that would lower my rate.

I am thankful that my rates are so low.  I know a lot of people aren’t as lucky.

But the final message for today:

My federal student loans are GONE!

 

[Edit 5/7/12:  Just looked back on my private student loans.  Turns out I only started with $57k at graduation.  And so far I’ve paid $49k in principal and interest, but I still owe ~$29k.  It’s mildly frustrating realizing I’ve already paid at least $13k in interest on my private loans (according to the loan company).  No, not mildly frustrating.  Gut-wrenchingly disgusting.  Oh well.  NEVER AGAIN!  (until I buy a house)]

Student Loan Payoff Progress December 17, 2011

If you follow me on twitter, you know I’ve been thinking a lot about paying off my student loans.  I already have my loans set to auto-pay every month, and, while that was slowly whittling away at the total amount, I felt like it was going to take FOREVER to pay it all off.  One of my loans had recently been sold off to Sallie Mae, and when I logged into their site, it showed the daily accrued interest.  Seeing that every day I left these debts unpaid meant more I had to pay in the long run made this really hit home.  I knew in my head that I was paying interest, but seeing it accrue gave me the kick in the pants I needed. At one point I was going to pay all of one loan off, then I went to half of that one loan, then I was afraid to do anything.

My final decision:  Pay $4,000 towards a loan currently at 3.5% interest.

I still have $4,584.34 to pay off on that 3.5% interest loan, and $30,330.61 total on a group of loans at 2.75%.

I headed over to the What’s The Cost’s snowball calculator to see how long it would take me to pay off these loans.  If I keep paying the minimum that is auto-paid every month, I’ll finally be free of these student loans by March 2018 (assuming that when I finish paying off the 3.5% loan, I’d use that money to pay down the remainder of the 2.75% loans). That is WAY too long.  I don’t want to wait that long.  That’s a lot of extra interest accruing.  And with interest rates on savings accounts now below 1% for pretty much every account I know of, it would make more sense to pay down the loans more quickly. So, I went back in to the snowball calculator, and tried to figure out how much I’d have to pay if I wanted to be rid of the debt by the end of 2012 (a wild goal I considered making after I felt so good paying the $4k).  Turns out I’d have to pay around $3k PER MONTH to get rid of all my debt within the year.

Here’s the thing:  I have a lot of money in savings.  Possibly too much, considering other things I could have done, like pay down my loans more quickly, or put more in my 401(k).  I’m basically like the people on Hoarders, but with money.  I’ve got a solid emergency fund, plus I’m saving up for a down payment and maybe eventually a wedding.  But those are still a long way ahead of me.

So the question is:  should I use my savings to pay off my loans?  In the long run, networth-wise, I should just get rid of my debt.  Granted, I was more keen on getting rid of it back when I graduated, with it being at 8.5% on $70k or so.  Most people would be willing to do almost anything for a 3.5% interest rate on a loan.  Part of me really just wants to get rid of that debt.  And if I draw from my savings, I think I can do it. But I should keep an emergency fund.  You know, for emergencies.

I think my best bet is to just set an amount that I will pay every month beyond the minimum.  I’m thinking $500-$1000 extra per month.  I think it can be done.

For now, I’m really glad that I made a big dent in my loans.  And that meant I met my first goal that I set on Payoff.com (and earned the First Goal Complete badge!).  And I earned 4000 credits on SaveUp.  So, besides lowering my debts, I got a few virtual rewards 🙂

So, would you pull money out of savings to pay low-interest debts?  Is there an amount or an interest rate that would make you change your mind?

Loan payments getting real September 30, 2008

I came home on Monday to see a few important-looking pieces of mail on my kitchen table.  And they both had to do with my new car.  One was the official paperwork from my car insurance.  I’ll admit, I’m not quite sure I understand everything relating to my car insurance.  It’s possible that I didn’t get a good deal, or that I got the wrong sort of coverage.  I’ve decided that reading through the information can wait until this weekend, when I can actually work through it to make sure I understand what’s covered and if I got all the correct discounts and everything.

The other piece of mail came from the credit union that I got my car loan from (through AAA).  I think this piece of mail really made the payments hit home.  I received my “Loan Payment Book”.  It’s basically a booklet with tear out pages with the amount due that I’ll send in every month.  I’m pretty sure that I can do this online (not 100% certain), but hopefully that’s the case, as I’m not really keen on paying for postage every month, and risk not paying on time.  I realized that there are two different ways to look at this booklet.  I can either look at it and feel overwhelmed:  look at all these payments that I’ve got due each month.  I’m going to be paying for this car (with interest) until almost the end of 2013.  Or I can look at it as an easy thing to accomplish:  I’ve only got to pay this amount 60 times, and then I own the car free and clear.  Granted, either way I look at it, I’m hoping I can pay this off sooner, which will lower the total amount I’ll end up paying.  But it’s definitely a visual plan that will help me to see progress towards owning my car.

So, we’ll see.  I’ve mentioned in the past that I hope to pay down all my debts a lot faster than the banks would like me to.  But this does make me realize that I should actually have a plan for paying off my debts.  I know plenty of people talk about debt snowballing, and I’m pretty sure I’ve seen a link from another blog to this before, but there’s a pretty simple site to help you figure out just how long it will take to pay everything off.  Now, instead of telling myself (and you all) that I’m going to pay “extra” every month, I can actually look and see what amount I should pay.  Sounds like this could actually provide results.

One can only hope!

My interest rate epiphany September 2, 2008

Okay, it’s really not that impressive of a revelation.  And many people have probably already realized this.  But it required the help of my boyfriend telling me to take a step back and look at my finances before I could realize this for myself.

I was struggling with the idea of going into even more debt to have a car.  And I kept saying I just wanted to pay off the car as soon as possible.  But as I mentioned before, my interest rate is actually lowest for the car out of all my debts.  And that’s when Aaron pointed something out:

Once you have the debt, it doesn’t matter if it’s “good debt” or “bad debt”.  You just develop a plan and pay it down.

It’s really that easy.  Sure, you should try not to incur more debts.  And of course, if there are tax or other benefits involved in paying off certain loans, you should bring that into the equation (which might make some debts slightly “better”).   But the typical good debts, like student loans and mortgages, are more often allowed in the personal finance world, compared to consumer debts.  But you can’t keep kicking yourself for making that decision; regretting a choice wont make the consequences go away.  But that’s how I was looking at the car debt; it was bad debt that I needed to get rid of ASAP.  Which really isn’t the financially smart thing to do.

Some people prefer following a debt snowball, starting by paying off the smallest debt first.  It may not be the best choice, mathematically speaking, but if you will actually do it, it’s a heck of a lot better than saying you’ll pay the highest interest rate debt first, but not doing it.

If you’re able to look at the debt in a purely logical way, and not in an emotional way, you can create a plan, and stick to it.  So that’s the plan for me.  I’m going to pay the amounts due each month (of course) and figure out how much extra money I have in my budget when considering monthly expenses, including putting money into savings and retirement investments.  And whatever that “excess” is, I’m going to pay that towards the student loans with the highest interest rate.

I think this is where the “personal” comes in with personal finance.  Sometimes you need to bring your feelings into the money equation, because they will inevitably affect you.  But I believe that I can look at the finance just numbers that need to go in a certain direction.  This may not work.  I think I’ll need someone to hold me accountable on this.  Make sure I actually sit down and write out my budget, rather than spend and then track the spending afterward.

I think I tend to make a lot of to do lists.  And sometimes I don’t do everything on the lists.  But I think that paying off my debts really needs to be something that takes top priority.  Which means I need to do the budget, and actually make the phone call to the bank where my student loans are from to find out if I can consolidate my loans at the low rate that they currently are (thanks to the low fed rate).  It really doesn’t take much time at all to do something like that.  But I just need to do it.

And like I said before, it’s better to do the thing that works, rather than the “best” thing if it doesn’t work.  So we’ll see if this plan works.

I bought a car! August 24, 2008

Yep, you read correctly.  I bought a car.  Technically I don’t have it yet (it’s in transit) but I’ll have it in about a week.

I first went to Herb Chambers Honda to test drive a Civic.  When I got back, all I really wanted to know was what sort of price they were going to be able to give me.  But they definitely gave me a bit of a runaround, and I felt very pressured to buy the car right then and there.  I was there alone, and really wasn’t ready to make any decisions just yet.  They kept pointing out that they could accommodate any monthly payment my budget would allow.  I kept asking what interest rates they could give me, or the lowest price they could sell it to me at, and they continually changed it from rate to monthly payments…very sneaky.  Because, as you and I know, you can basically make a monthly payment of any amount, as long as you stretch out the payment schedule long enough.  And who wants to pay all that extra interest?

So, that was Tuesday.  I was busy the rest of the week, until Friday evening.  This time, Aaron came with me.  We went up to Commonwealth Motors.  I took another test drive with the Civic they had available.  The woman that showed me the car was really friendly, and took me around the dealership to see all the benefits they had.  I could tell what she was doing, but I let her show me around.  We started talking about cars, and I asked if they could go any lower on the price.  Like at the last dealership, she got her supervisor, who is more likely to actually make a deal.  So he said he could go as low as $17600, which was okay, with an MSRP of $18,430 or so.  Still, I wasn’t quite ready, and wanted to test drive other cars.

So, Saturday morning, I got an email from Herb Chambers Honda (yes, I gave them way too much contact info).  I called them at the number they mentioned, and the guy got his manager, who said they could probably match the price I got at Commonwealth, and that I should come in.  Well, Aaron and I headed over there, and since his car needed a tuneup, we dropped it off at the nearby dealership, (free parking!  except for the cost of the repairs not covered by his warranty)  and headed over to the Honda dealership.  It turns out that they didn’t have any more of the Civics in blue, which was the color I was hoping for.  They did say that they were willing to go as low as $17550, but that they couldn’t go lower than that.  I wasn’t too keen on buying a car without trying any other types of cars, and I also knew that Commonwealth had a few blue cars coming in, so I figured I’d wait and get back to them.

The manager actually offered to have the salesman drive us over to Herb Chambers Toyota in the manager’s car, which I thought was really nice.  Maybe they were hoping we’d come back, or they just wanted to be good guys, but either way, it was a good thing.

We got to Herb Chambers Toyota and had to wait around a bit.  All the salespeople were busy with other customers.  However, a man named CK, who apparently works more in the internet sales department, saw us waiting and offered to help.  I appreciated that.  I told him I was looking for a Corolla, and he had us go out on a test drive.  I found the car to seem a little more “normal” compared to the Civic, which seemed to have a bit more “space age” look to it, especially when it came to the dashboard.  I also noticed that the Corolla had a smoother ride.  I guess they say that it has a looser suspension, which means you feel less of each of the bumps on the road.  The salesperson at Commonwealth said that that meant that the Civic and other cars that touch the road more are safer because you’ll always be on the ground.  I’m not sure how much I believe that.

So, we talked a bit more with CK, and he was really nice.  I felt a lot more comfortable there than at the other dealerships.  I collected as much information as I could, and then Aaron and I headed over to the Super 88 food connection to grab some lunch.  It was pretty darn tasty.  I was going back and forth on which car I preferred.  I knew that really, it was my decision, not his, not my family’s just mine.  And I really hate making decisions (it took us a while to figure out which place to get food from!)

In the end, I decided that the Corolla just felt better.  The smoother ride and more normal looking/feeling car appealed to me.  Not sure if it was because it was the last car I looked at, but either way, I figured I couldn’t really go wrong.  I figured that if I could get a similar deal on the Corolla as was promised on the Civic, I would be happy.

So we headed back, and CK found a car fitting my needs (the Corolla LE) and was looking for a blue car for me when he found the listing that showed that ZERO blue cars were being made for them.  I’m not sure how exactly that happened, or what exactly that meant, but I had to decide if the color was that important.  Luckily, my second choice color was available in the trim level I wanted.  I opted for the LE over the base (CE) because it had power locks, power windows, cruise control, and a few other options.  Yes it’s more expensive.  But I wanted to be happy down the line.

So I was handed off to the actual salesman, and he was able to give me ~$1000 off the MSRP.  In retrospect, I should have asked if he could go lower, and I’ll probably be kicking myself down the line for not trying to get it lower, but there it is.  I signed forms that scared me, and put down a deposit.  My car will be in off the trucks in about a week.

It’s a strange feeling.  It was such a big decision, moneywise.  I know I’ll be happy in the end, but I also know I probably could have gotten a cheaper car if I had gone for a used car.  I’m getting my loan through AAA, like I mentioned before, and they’ve got a rate better than the dealerships could offer (they don’t have deals on the fuel efficient cars because they’re already in such high demand!)  So, I’ve got to decide the length of the loan (likely 3-5 years).  Luckily, they don’t have any added fees for prepaying (I wonder if that also means if I completely pay it off early they wouldn’t have a problem with it) so I could technically get rid of that debt sooner.  It actually is the lowest APR of all my loans…4.49%.  My fixed rate student loans are at 4.5% (not too much higher) and my variable rate loans are currently at 5% (though that wont always stay).  It’s another barrier towards being debt free.  And unlike education, you can’t quite label a car purchase as “good debt”.  But I do plan on having this car forever (relatively speaking), and so I’ll try to get my money’s worth.  I just need to buckle down and work even harder at paying off my debts.

Next step is getting car insurance.  I’ll let you know what happens with that.

And now it’s time for bed.  I’ve got to get up early for work tomorrow so that I, you know, can make some more money to pay off all those bills.

Buying a car August 10, 2008

So, unlike my last post that merely mentioned cars, this post is actually about cars.  Somehow that post was made one of the top posts on the cars news list list on wordpress, which bumped my stats up a heck of a lot.  Which I found silly, since I didn’t really talk much about cars.

Anyway, so I’m writing this post to sort out my thoughts on buying a car.  With my new job, I really need to have my own car, as I can’t depend on borrowing friends cars much longer.  I know there are so many different things to consider, and I’m never very good at making decisions.  My friend Kendall just bought a car (and wrote a post about it), and she made it seem so easy!  I’ve taken a few steps towards buying a car, such as buying a copy of the Consumer Reports Cars magazine (they also have a pretty extensive website and blog, but a lot of it is by subscription only).  I’ve gone through all the new cars they’ve listed and sorted them out into cars I’m going to consider and cars I wont consider based on price, gas mileage, and appearance.  I know there are more things to consider, but that was my first step on paring down my options.  I know that, besides the cost/gas mileage etc. that I also want it to be a safe car (both for driving and, heaven forbid, an accident), that has airbags and other safety features like antilock brakes.  I want decent trunk space and prefer 4 doors to 2 doors.

Things I’m not sure about:  The maximum I’m willing to spend, how to go about getting insured, whether to do financing, and if I do, then with what organization?, new or used, how to negotiate.

I know for financing that it depends on the deals I can get.  If I get an interest rate lower than my current savings rate (with ING at currently 3%) then I’d consider it (I know that car dealerships sometimes have deals like that).  I also don’t know what sort of loans I’d qualify for.  I probably could also get a car loan from a bank, as well.  I shamefully don’t know my current credit score, so I guess I should figure that out.  If the car is cheap enough, I could perhaps pay it all at once with money in my savings account.  But again, that would most likely depend on what sort of car loans are available to me.

As for new vs. used, I’m worried that with new cars you lose a heck of a lot of the car’s value once you drive it off the lot.  But with newer cars comes more safety features, and perhaps better gas mileage.  On the other hand, I don’t want to spend too much, and used cars tend to be cheaper.  If I bought a used car, I would likely buy it from a dealer that certifies the cars and provides the warranty for it.  But sometimes you can actually get pretty good deals on new cars if the timing is right.

So it’s a pretty big step to take.  I’m trying to sort out all the different factors, but it’s difficult.

What do you look for when buying a car?  What are your priorities?  Any recommendations on a fuel efficient, relatively inexpensive car?  Do you buy new or used?

I just feel so overwhelmed, so any advice would be greatly appreciated.

My student loan interest rate dropped! Hooray! January 9, 2008

I had read a post over at FiLife.com about why student loan interest rates aren’t dropping nearly as quickly or as often as the savings account interest rates are dropping. They said that many student loan companies have set their contracts to change variable rates at certain times and based on certain values and averages. For the company I’m borrowing from, they reset their interest rates every quarter. They’ve lowered my interest rate from 8.25% to 7.5%. I was worried that they had taken away my .25% rate reduction that they had given me for automatic deductions. I called them up and they said that they did. So, I guess that’s that.

So, check out your loans! Your rates might have been lowered!

(Yes, I know that since it’s based on variable rates that it could also go up. But for as long as I’ve been actively paying my loans (since I graduated) they’ve been at a stupidly high 8.25%. So things feel better now)

One thing to note is that if you are automatically having money deducted from your bank account, they might start taking less out…because with less interest charged, they wouldn’t get as much money from you, so by lowering your monthly payment, they’ll have you paying slower at the lower interest rate. So, keep that in mind if you’re trying to pay down your loans faster than they want you to (like I want to do).