I want to thank everyone for reading my LONG first post about my student loans. I received some great feedback in the form of comments here on the blog, and also in the form of private messages from across the country. It means a lot to me that you took the time to read it, and that you are grateful I opened the conversation. I was incredibly nervous to talk about this, but I know from the response I received that I made the right decision. I decided to definitely add an entry (after telling my own story) to address some of the questions and comments, so please continue to give me your feedback and your responses so I can talk about them in a few weeks!
This installment is the most personal one yet because I talk about the staggering amount I actually owe. I know that there are many of you out there who owe more, and some who owe less, but no matter the exact number, it has an effect on our decision-making and our futures. Therefore, I am splitting this entry into two parts, with the second one addressing the impact my loans have on my decisions, and the compromises and concessions I make in my daily life. This stuff is depressing, and this blog is not called #LongLegsBigLoans, so I will try to intersperse these with lighter topics. As always, please subscribe and I welcome all comments. Also, if you know anyone else struggling in silence (you probably do, if you look at the numbers), feel free to pass it along! Thanks for reading ♥
Part 2 (A) – Amount of Money; Loans on Loans on Loans
Soundtrack: Bills, Bills, Bills by Destiny’s Child
“Can you pay my bills? Can you pay my telephone bills? Can you pay my automo-bills?”
Student loans are a generational problem caused by a hat trick of terribles: 1. Higher education is now necessary to get any sort of high-paying occupation, which it was not during our parents’ generation. 2. Education costs a sh*tton of money. Tuition has gone up 538% in the past 22 years! And salaries have not followed suit. 3. Banks and the Federal Government know that, and take advantage of it by charging astronomical and stifling interest rates, and not forgiving loans when they originally said they would. Some states have taken it into their own hands and have actually sued FedLoan servicing over their unethical practices, acting as the enforcer when FedLoans has repeatedly mis–charged borrowers and refused to reimburse them. Even the Massachusetts Attorney General called them out on their “unfair or deceptive practices.”
So let’s say you don’t actually get overcharged and you are just being “rightly” charged an arm and a leg every month for the indeterminate future. This installment is going to be about the sheer quantity of loans people carry. There are a lot of numbers at the beginning, so don’t let your eyes glaze over. The math will be over quickly and then I will explain in laymen’s terms how terrible this all is while I listen to the “Songs to Cry Too” (sic.) playlist on Spotify. Spoiler Alert: there’s a lot of Ed Sheeran.
People are afraid to say the true magnitude of their loans, so I’m going to start by just straight saying it: I currently owe $92,907 in federal loans and $6,713 in private loans. Total Owed = $99,620. In a few months, it will undoubtedly be 6 figures. I finished law school with $86,702 in federal loans and $12,000 in private loans. Let that sink in, I went from $98,702 in loans when I graduated, to $99,620 at the current time, 4 years later, and I have made thousands of dollars in payments over the years. My federal loans have literally increased by over $6,200 despite the fact that I have paid hundreds, and at some points, thousands of dollars to them every month since I graduated.
The good news is, some states are trying to curtail this problem by offering free tuition to state schools (GO NEW YORK, GO!). The bad news is, there are no such programs for graduate school, and if you go to a grad school, you’re basically f*cked. Americans owe over $1 trillion in student loan debt, spread out among about 44 million borrowers. That’s about $620 billion more than the total U.S. credit card debt. Approximately 40 percent of the $1 trillion student loan debt was used to finance graduate and professional degrees. Also, the interest rates on grad loans are higher.
There may not be any state-funded programs for grad schools, but there are still some scholarship programs or merit-based options. I received $39,000/year in scholarship from Brooklyn Law School. That means that if I did not have that scholarship, I would have completed law school with a whopping $216,620 in student loans. Just think about that for a second. If I did not have scholarship, I would have left school with the amount of loans that could pay for a nice, suburban home.
I cannot believe I just admitted that I had that much money in loans. As you read in Part One, one of the major emotions associated with loans is shame. But really, why?? Everyone has them. Or at least 70% of us do. What about the people who didn’t have scholarship? I was almost one of those people. I applied to 10 law schools, and I was accepted to 7. Many people suggested that the decision was simple: go to the highest-ranked one. For me, that was Boston University, ranked 20 at the time. Top 20 school, they said. No brainer, they said. However, BU didn’t offer me any financial aid. I decided not to go there, and that decision was based solely on money, not at all based on the fact that I saw a roach when I toured the building. (Ok, the roach probably made an impact, too.)
In hindsight, especially since I do not work in law anymore, I think I made the correct decision. But how would I have known that for sure at the time? Anyone I asked advised me to go to a better school, one that would improve my marketability, and therefore improve my job prospects, and therefore would improve my earning potential. When I was applying to and choosing between law schools, the conversation of student loan repayment almost never came up. In hindsight, that seems incredibly short-sighted and a bit unbelievable.
I was speaking with a friend who does not have any loans recently, and I was pitching the idea of writing about this topic. I cited a few vague statistics, noting that I owed about $100K, and that I had a combined $120K in scholarship. He looked at me like I had 5 heads, and he said, “What? That can’t be, that means that people can graduate from law school with over $200K in loans!” It seems crazy, but it is entirely possible. Brace yourself for some more math here; it’s basic, don’t worry. Tuition is $50K/year., which means 3 years of law school = $150K. That leaves only $50K for room and board for 3 years if you want to leave school with only $200K in loans. That means $16,666/year. Let’s say you live in a modest apartment in New York with roommates, for about $1,000/month (what a great deal!). That means your rent is $12,000/year, not including utilities, and that leaves you $4,666/year for food, utilities, metrocard, oh, AND BOOKS. Which can be $1,000/semester. Basically, there is no way you can get out of law school with only $200K in loans if you don’t have scholarship. And then school ends and the interest hits you.
Last year, my dad was asking me questions while filing my taxes (thanks again, daddy!), and he asked me, almost incredulously, “you didn’t happen to pay over $2,500 in interest on your loans this year, did you?” I basically laughed in his face. OF COURSE I paid that much in interest! Thankfully, the one place student loans come in handy is when you do your taxes, thanks to the big break you get for interest. But the fact that my own father had no idea that literally ALL of my payments I make toward my loans go ONLY to interest, shows the ignorance that most people without loans have about them. Last year I paid $5,500 toward my federal student loans. Of that, $5,500 of it went to interest. That’s right, all of it. Here is a screenshot of my payment to my federal loans from June of this year. $462.32, $0 of it applied to the principal.
But this brings me to my next obvious point: the reason some people cannot empathize is because they do not have any first-hand experience. I talked about this in Part One dealing with emotions, so I won’t say much about it here, but those who do not have loans just don’t think about it. Their world doesn’t revolve around these monthly payments, so they don’t realize just how much of a lead weight it is for so many people.
I have one friend who told me she used to pay student loans 8 separate times throughout the month until she consolidated them recently. Talk about a constant reminder. She was basically hemorrhaging money EVERY FOUR DAYS. According to CBS Money Watch, students typically end up with five to seven different loans at graduation. Each one can be for a different amount and carry a different interest rate.
I have another friend who told me her monthly student loan payment is higher than her mortgage. She lives in Utah, but STILL. For those of us not in Utah, or those of us without spouses, how are we supposed to purchase homes, build families, or become independent humans, when we are paying ridiculous amounts every month just to stay above water? It really is a huge problem.
THE MOST DRAMATIC BLOG POST CONTINUES NEXT WEEK!! Stay tuned and subscribe; next week I will explain the small and big ways I try to save money to stay above water, as well as the huge life decisions that will be impacted by my student loans: career, family, home, retirement, basically everything. The following installment, I will tell my personal story about which repayment plans I have opted into, and out of, and how I am using free credit card offers to pay off my private loans. $$ FREE MONEY! $$
8 Comments
This is probably a duh question, but the reason you owe more than when you graduated is solely due to interest? I only had undergrad loans and my parents took on the big ones. I had no idea about this. =x
Short answer: yes.
Long Answer: When you pay on an income-driven repayment plan, which I will go into more this upcoming weeks, you pay a percentage of your income, NOT a percentage of your loans. However, the interest on your loans is a percentage of the principal. Therefore, if you have high loans, and a low salary, the percentage of your salary that is your income-driven repayment will often be lower than the interest itself. Since interest is added to your loans each month, and the next month, that leftover interest that was not covered by your payment ALSO gets charged interest, and it becomes a compounding, almost exponential problem. Fun times.
Just stopping by to say I love you! Keep it up, sis! I believe in you!
Trade New York for L.A. and this is me!
How, how did the government learn that they could get away with this? The fact that you, and basically everyone else with student debt, is dumping money into the monthly payments and not even making a dent is insane! Did the government think the students were stupid enough to sign the loan paperwork and just figure it out later? Or did they have a plan to convince everyone that they can’t get a good job without a degree? And how are Americans ok with our government loaning out this amount of money to people they KNOW can’t possibly pay it back because of the unrealistic interest rates?
I think that last question is the real interesting one. Did they actually think we would ever pay this amount back? Or is it just a scheme? It seems like they shouldn’t allow people to borrow this magnitude of loans. But then again if they didn’t, no one could afford school. Catch-22?
I must admit that although I requested a post about all of this loan stuff, I am just reading this post about a week later. That’s because even just reading about this topic is overwhelming/depressing and I couldn’t handle it (emotionally speaking) during back-to-school week. But since it’s 1am and I’m already struck with insomnia and paranoia about all of life’s potential pitfalls I figured now would be a good time (ha)!
Thanks for your openness on the topic… I look forward to the next installment!
So depressing, I agree. I was listening to the Death, Sex and Money podcast from last night on my way to work. They did an hour-long installment of questions on student loans. What a downer haha But it’s interesting! There’s another tonight if you can stomach it! http://www.wnyc.org/shows/deathsexmoney