Let’s Talk About Student Debt: Part 2: Digging Out June 2, 2012

I went over how I was able to load myself up with student loans.  Now for a few ways that I think I was able to work my way out from under them.

I earned money to pay off the debt:

I picked a major with decent potential future returns.  I know that a lot of people don’t want to just go with a major that will make them a lot of money.  I know money isn’t everything (even if that’s what I blog about all the time), but it’s important to consider your potential earnings compared to the debt you’re taking on.  Yes, lower paying jobs can also be rewarding.  But until employers recognize the importance of these other, less lucrative careers, taking on a lot of debt to get there is a dangerous game.

I got a job every summer.  The summer after freshman year, I didn’t have my act together as much as many of my classmates.  While they got internships or summer research positions, I was stuck working at the mall near my parents’ house.  On the upside, I was able to live rent-free with my parents.  And I got some cute clothes at a discount from the store I worked at.  On the downside, it was not really a resume builder, and it was painfully boring and not at all mentally stimulating.  This experience would often come back to me whenever I thought about giving up on school.  Whenever I wanted to quit, I’d think back to how much I hated my summer job, and I’d get back to work.  Way better to finish college than be stuck doing what I hated for the long term.

My summers after sophomore and junior years, I worked at summer internships in the materials field.  Both jobs were interesting, and I learned a lot more about materials processing and analysis.  And it looked pretty good on my resume!  Plus, the internships (and reports I later presented about them) fulfilled a degree requirement that I would have otherwise had to write a thesis for.  So, gain experience, get paid, and get closer to my degree?  Excellent.

Besides trying to make more money, I also took advantage of any way to lower my interest rate or principal.

I consolidated my public loans right before an interest rate was set to go up.  I didn’t actually know what I was doing then, but I was told to do it before the end of June.  So I did.  I wish I knew more about loans then.  Sometimes consolidation will get you a better interest rate.  It will help you keep track of all your debt in one easy payment instead of multiple payments.  But it’s not always a best plan.  Like I said, I wish I knew more.  I think I did the right thing, but I don’t know if it was.  But it was too late to go back after I did it!

I signed up automatic debit, which lowered my interest rates by .25%.  And then continued to pay on time (through automatic debit) for long enough that they lowered my rate by another .50%.  And by luck, my private loans were pegged to the fed rate, so my interest rate dropped with the crumbling economy.  Check with your lender/loan servicer to see what discounts or other payoff options are available to you.

I (occasionally) paid extra on my loans.  I went  for the loan with the highest interest rate, and then I paid down the principal as much as possible.

I know none of these steps are earth shattering.  I just figured it was important to follow-up my first post with the ways that I’m dealing with the debt.  It still is a lot to pay off (I still owe a bit less than $29k at 2.75%), but I just keep paying the minimum, plus any extra I can to keep whittling away the principal.

I wish I had been paying extra towards the principal the entire time.  Especially back when the interest rate on my private loans was around 8.5%.  But I didn’t know better.  Which is why I’m glad I’ve learned a lot about personal finance since graduation.

So, what have you done to help dig yourself out of debt?  What did you wish people had told you?

[Edit:  As of May 2017, all of my student loans are paid off!  Just took me 11 years to do it!]

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?

I’m okay with being wrong sometimes March 21, 2010

This post was inspired by one of Debt Ninja‘s recent posts (on his awesomely named blog, Punch Debt in the Face).  He wrote about how he’d rather have some debt and more in savings than no debt and less savings.  Basically, he wasn’t comfortable using his savings to pay off his debts and join the magical realm of the debt-free.  Later, when Consumerist ran his post, there was quite a few nasty remarks about what he SHOULD be doing.

I’ve been struggling with this situation for a while:  accelerate my debt payments, using money in savings, thereby increasing my overall net worth (because my debts are at higher interest rates than what I am getting from savings accounts), or just keep building up savings while slowly paying off debts.  Mathematically speaking, I should be paying off my debts.  But in this economy, I’d rather have more savings, with manageable debt payments, than less savings and hoping nothing bad happens.  I’m a worrier.  That’s the problem.

Also, my debt interest rates are pretty darn low.  My student loans are at 3.25-3.5% APR, and my car loan is at 4.49%.  If I ended up paying all that off, but then fell on hard times, I really doubt I could get a personal loan or credit card with rates that low.  I also hate the idea of carrying a balance, or adding new loans (with the exception of a mortgage).  Paying off everything (or most of my debt, since my debt load is more than my liquid assets) would mean that I’d probably pay more in the long run.  It’s that “penny wise, pound foolish” idea.  Yes, I’d be cutting expenses even more (though as it is, I’m NOT a spender), but I’d rather have money in the bank than be completely debt free.

Don’t worry, as of now, I’m working towards eliminating my debt.  It’s a long and painful process.  But I also worry that I may be doing other things wrong.  Balancing all these financial priorities can get me a bit stressed.  Besides looking at the short-term (the savings vs. student/car loans), I know that I’ve got to save for retirement.  I max out my Roth IRA each year, and I contribute to my company’s 401(k) up to the 4% match, but I know I could be diverting more money to my retirement funds.  I could be contributing up to the max, $16,500.  But that’s a lot.  I wouldn’t have to max it out, but just start contributing more.  I checked this 401(k) Savings Calculator, and, even assuming no increase in salary, my retirement account total (at retirement age of 65) increases by more than $100k for every additional percentage point.  I’m still early in the game, so compounding is really in my favor on this one.

So am I changing my 401(k) elections?  Not yet.  Why?  I’m going to wait until my emergency fund hits its magical 2-years of expenses point.  Yes, that’s excessive.  But once it’s there, I promise to up my 401(k) contribution to 5%.  I’ve decided that.  You can hold me to it.  And perhaps we can set another milestone for when I increase my 401(k) contributions to 6, 7, 8% etc. (I welcome your ideas!)  And in the meantime, I’ll be paying off my debts.  And saving towards other goals.  And you can tell me that I should be paying off debts instead of having a 2-year emergency fund.  If you can provide a valid enough argument, you may convince me to change my ways.  But until then, I’m going to continue doing the “wrong” thing.

The good kind of impulse spending? February 23, 2009

I just set up two extra payments towards my student loans.  One to my ~$15k  at 4.5% loan, and one to my ~$44k at 4% loan.  And it was kind of on a whim.  I was visiting my mint page (as I do, perhaps too often) and saw the reminder to pay my student loan bill.  And technically, I don’t have to schedule payments, as I’ve signed up for their automatic bill pay setup (which I believe gives me a .25% interest rate deduction).  But I can still manually set up payments.

Why did I do this?  I think it was due in part to realizing that my savings account at ING is making pretty crummy interest(1.835% (1.85% APY)), compared to back in the heyday (only a few years ago!), though I will admit it’s still much better than the tiny rate I used to get at my brick and mortar bank.  And so my money is going to do a lot more for me (net-worth speaking) paying down my student loans than it would be sitting in savings.  And I actually didn’t move any money out of my savings account, I just took some out of my checking to pay these extra payments.  So I’m not saving any less.

So, while I feel a bit anxious about the fact that I’ve reduced my liquid assets by ~$1k, in the long term, my net worth will thank me.

In the meantime, I’m also wondering if I should start “shopping around” for better savings account interest rates (or signing up for a CD ladder, which I’m still not very familiar with).  I have heard good things about Emigrant Direct, but I’m not sure how much of an impact a slightly higher rate will have on my savings.  What are you doing to counteract this crumbling economy of ours?

Happy New Year! January 5, 2009

I hope everyone is enjoying 2009 so far!

New Years gives a chance to both look back and look forward.  I did a bit of a review of the past year in my blogoversary post (and what a year it was!).

And, while I tend to be crummy at these sorts of things, it’s time to set some goals for the coming year.

Financial goals:

• Attain positive net worth.  After analyzing my net worth changes using NetworthIQ, and assuming the trends will continue, I should hit a positive net worth by August.  To speed this up, I also intend to pay extra on my student loans every month.  I think I’ll pay an extra $500-1000 each month, or perhaps just change my monthly payment to what it used to be back when my rates were higher.
• Rebalance my retirement portfolio.   My Roth IRA, rollover IRA, and 401(k) are all run by the same financial company.  They’ve run some analysis of my overall portfolio, and there are some chances that could be made overall.  I set up my new 401(k) as balanced on its own, but when you include my IRAs, the percentages of assorted get thrown off from my ideally balanced portfolio.

Other life goals:

• Live more healthily.  I know that goals should be specific  if you’re hoping to accomplish them.  But I’m looking to you guys for some suggestions.  I know there’s exercising to be done, and healthier foods to be eaten, but other than that, I’m not sure what definite goals to make.  Well, one is to drop my BMI by 1.5.  That might sound extreme, but that means dropping less than a pound a month.  I like the idea of being a bit more in the middle of “normal” for my height than towards the top.
• Get and then keep my room clean and organized.  My sister is pretty good at this sort of thing, so she’s offered to come by and help me with the initial clean.  I’m also reading some organization books to get myself motivated.
• Blog more often! Let’s try at least once a week.  I’ve got some ideas in my head (including a post that further discusses the goal to be a healthier person).

So I think those are some good goals!  I’d love to hear what your goals are, and how you hope to attain them (especially if they’re health related goals, as that’s something I want to learn more about).  Are there any other goals I may have missed?

My student loan rates dropped again! July 5, 2008

I mentioned before that my student loan rates had dropped a few times.  Well, it’s happened again!  I was actually looking forward to July 1st.  Yeah, I know, so lame.  But yep, my variable rate is down to 5%!  So that’s pretty excellent.  It went from 8.25% to 7.5% to 6%, and now to 5%.

Now something I’m not quite certain of is if I could consolidate my loans at this rate.  I’d assume that the Fed rates don’t have too much distance to go (it’s at 2% right now, so really, it can only drop down 2 points, right?), and so it would be pretty low.  I just don’t know for certain how to go about it.  I consolidated my Federal student loans after graduation, but I just left my private loans as they were.  Have any of you done this?  I guess I could just call the company that my loans are with and ask them how it works, but I think I’ll at least hold off until after this weekend.

Happy Fourth of July!

Sharing Assets, Sharing Debts April 28, 2008

My boyfriend and I were joking about getting married the other day, and he joked that he’d want a prenup, as I’m bringing more debt to the playing field than he is. That got me to thinking…would I want to share my debts and assets? I don’t know if it’s just me, but I kind of want to be responsible for my debts, and keep my money to myself. I don’t want whoever my future husband is to have to shoulder my student loan debts. But I guess, I also sort of selfishly want to keep my money to myself, too. I read in plenty of personal finance blogs about how couples share everything, moneywise.  I think I wouldn’t mind having a joint bank account with my guy, where shared costs like housing, utilities, food, dining out, etc. would get paid from, and we’d put a certain amount in that account every month to cover those expenses.  I know my parents share their money, and I admire that in them.  Maybe this just proves that I’m not ready to get married any time soon.  Don’t worry, I’m not expecting it (in case he’s reading this…we’ve only been together a year)!

So, you single folk, dating folk, married folk…when it comes to money, what situation do you prefer, or assume you’ll do when you get into a long term relationship?

Looking at the positive of the recession April 11, 2008

The Feds keep lowering rates, which is unfortunate for my savings account, but great for my student loans.  As I’ve mentioned in the past, ING, as well as most other banks that offer “high yield” savings accounts are staying close to the Federal Fund Rates, which is currently 2.25%.  And so my account has suffered a little, but I haven’t taken any money out of my “emergency fund”, except to fully fund my Roth IRA for 2007.  Since I had started the Roth IRA halfway through the year, I didn’t put enough in to cover the $4,000 max for last year.

Anyway, I just wanted to remind you to check your rates that depend on the Federal rate.  Some rates are fixed (for me that means my consolidated student loans stay at 4.5%), but other rates depend on the Federal rate.  While I don’t worry about credit card rates (I pay off my balance every month), some credit card rates are based on the Fed rate plus some constant extra percent above that.  The one rate that I’m excited about is my student loan rates.  I owe a large chunk of money for student loans that follows the Fed Rates…and every quarter, they readjust their interest rates accordingly (I’ve heard many companies do this).  So while ING and other banks follow the Fed rate very closely, these rates go at a slower pace.  So, currently, those loans are only at 6%!  Which still is a lot, but it’s a lot better than the 8.5% it was a year ago.

Oh, and Trent at The Simple Dollar wrote an article about the recession and what’s going on…it’s pretty good, you should check it out!