Student Loans Part Two B – Decisions, Decisions, Decisions

Soundtrack: Prerogative by Britney Spears

(alternate: Bad Decisions by Ariana Grande)

“Everybody’s talking all this stuff about me, Why don’t they just let me live? I don’t need permission, make my own decisions, That’s my prerogative”

Here’s a scary statistic: according to the New York Times, “more than 1.1 million people in the federal direct student loan program defaulted in 2016 alone — a rate of about 3,000 per day.” Even scarier, federal student loan defaults drag down the economy, making it impossible for people to buy cars or homes, and follow people into old age, where their Social Security benefits are being garnished for loan payments.

What am I doing to make sure this doesn’t happen to me? Budgeting and planning. And hoping.

As the Instagram account @bored_teachers said a few weeks ago, “Can someone explain to me how some college students are traveling all over the world and I just used quarters for gas”?! The reality of having almost 6 figures of loans is, it affects every decision I make. Small and large.

Small Decisions:

I went from a twice daily Starbucks habit in law school, to now waiting for CVS 30% off coupons so I can buy bags of Starbucks coffee and make it at home. I wait on the edge of my seat on Thursdays, CVS coupon day, when I am almost out of ground coffee, and impatiently refresh my inbox to see if this lucky day will be my “30% off your total purchase” day. This is not an exaggeration. Two weeks ago, I got the long-awaited 30% coup and I bought 4 bags of coffee. That’s $7/bag, and a bag makes coffee for me for about a month. $7/month, as opposed to the previous $4/day.

But that is one of the easy small decisions. Skip Starbs, make it at home. Skip a cab, take the subway. Skip a dinner out, make ground turkey and eggs at home. What about the tough decisions? Kids? Homes? Do I skip those, too?

You guys know I have been avidly using mint.com to try and budget, but even then, these student loans hang over my head and I think to myself, “even if I skip going out to Starbucks for the next 10 years, does that add up to enough money for a down payment?” Probably not. And don’t even get me started on having a kid. And what about saving for retirement? I’m 30, that’s something I should be doing. I’ll tackle those three big decisions in turn.

3 BIG DECISIONS

Home-buying: I moved out of my parents’ house more than 12 years ago, and I am happy to say I have never moved back. That is not something a lot of people can say. StudentLoanHero writes about it all the time (great website). They have an article called, “Moving Back in With Your Parents: Financially Smart or Social Suicide?” I only skimmed the article, but my guess is, probably both. The Washington Post ran an article a few months ago encouraging parents to let their kids move home, “especially if parents allowed or encouraged a student to attend a college that necessitated some heavy borrowing.” But I am 30 now. I’m not trying to flee back to the nest. On the other hand, renting an apartment is expensive, especially in New York City! And forget renting for a second, what about buying? Thanks to my dad, and ironically, thanks to my student loans, I have amazing credit. So I could probably get a good mortgage. But where in the world am I supposed to find money for a down payment?

According to a Student Loan Hero survey, 41 percent of college-educated Americans with student loans have postponed buying a home because of their debt. At least I know I am not alone. An article on that same website offers some tips for how to get ready to buy a house when you have student loans: Improve your credit score, check your credit report, decrease your debt-to-income ratio, apply for pre-approval for a mortgage, consider down payment assistance programs.

Just reading those tips made me overwhelmed. Not to mention there are some things in that list that are impossible. Checking your credit report is easy, but how do I decrease my debt-to-income ratio when my loans are literally GOING UP? I think the answer here is: there’s no answer. And despite those great tips, as far as home-buying goes, I think my best bet is still to marry rich.

Children: I found a website where it lets you calculate how much it will cost to raise a child. I selected the Northeast region, and in an aspirational leap of faith, I selected that I was not single and that I was in the highest income category ($107K and above), which I am not, but with combined incomes (of my non-existent husband), let’s hope that I hit that minimum. The projected cost?? $496,830. GTFO. Really though, how does ANYONE afford that, nonetheless someone who is gushing money to the government every month? This is a huge topic, and a problem for the US in general since 70% of us have loans. In a recent article by StudentLoanHero, they told people not to let their loans get in the way of their aspirations of parenthood. However, in that article it was a double-income household, where they had a COMBINED $35,000 in loans. As you guys read two weeks ago, I have almost $100,000! What about then? As much as I try not to think about this (I have actively taken steps to ensure I am not getting pregnant anytime soon), it still gets into the back of my mind. I’m not saying I want to quit my job tomorrow and be a mom, but I know for SURE that I’d like to have children someday. It doesn’t seem fair that I made a mistake by going to law school, and for that reason I can’t procreate. Don’t get me wrong, I know plenty of poor people have kids all the time, so it can be done but I also want to be able to provide a child with the middle-class upbringing I had! I am only 30 years old and I may be getting ahead of myself, but here is why it has an impact on me and my choices right now.

I will be delving into the different repayment plans next week, but here are the basics relevant to my childbearing decisions: If I continue working in public service, and the public service loan repayment plan continues to exist, my loans will be forgiven in 7 years with no tax consequences. If I switch to non-public-service, or if the plan is discontinued by our (failure of a) commander in chief or his Cabinet, my loans will be forgiven in 17 years, AND with a massive tax consequence. In 7 years I will be 37. Still a totally acceptable time to have a kid. And/or buy a house. In 17 years I will be 47. As they say, tick tock, tick tock… TOO LATE. This has absolutely impacted my decisions about my career. The problem is, this 10 vs. 20 years thing is a huge gamble. The program could be thrown out by then! I wake up every day thankful that it is still around. And it’s looking like it might be discontinued soon. Even GQ wrote about it; so did NPR, so it’s probably a legit worry.

My savvy-emoji-live-in-financial-planner told me to not think so much about the amount of loans, but rather to think about it as the government owning 10% of my earnings for the foreseeable future. This is a bleak thought, but it does make me feel a little better about the fact that the principal of my loans continues to grow. It also affects my decisions, though. Should I forget completely about the public service program and just focus on making more money? (warning: math coming) If I make $50K now, the government takes $5K, I end up with $45K. If I make $100K, yes, the government gets twice as much, $10K, but I still make $90K, which still means I make $45K more! But I like my job! I already quit being a lawyer because I was miserable; should I go back to a job I hate so I can make more money so I can possibly have a kid (or 2?!) someday? There is no right answer to those questions, so I’ll just hop to the next big decision.

Retirement: Let’s say I never own a house and I never have kids. Those two things are choices and it’s possible they will never happen. But here’s an inevitable cost: retirement. I’m not saying I will retire at 65, almost no one does that anymore. Even Social Security started to raise the age to 67 lately. I told you in my very first installment that the only way to get your loans discharged is in death. But let’s say I unluckily live a very long life (knock on wood); I need money then, too! If I don’t start to save for retirement until my loans are discharged or paid off, I’m screwed. Because that time will never come. Or at least it won’t come until it’s too late.

I originally told you guys this would not be a financial advice blog, and so far I haven’t given you any, but here is your first tidbit: if your job has any sort of matching program, you absolutely must take advantage of it. Plain and simple: it’s free money. Matching basically means that for every dollar you put in, they will put in 100% of that amount into your retirement account, dollar for dollar up to the match. No matter the interest on your loans, it’s not 100%. I’m not telling you to default on your loans. But I am maybe telling you to make minimum payments on your credit cards if it means you can pay into a match program. The interest rate on your credit cards is probably 10-17% and the FREE MONEY from a match program is 100%! Small caveat here for if you have a massive amount of credit card debt, and in that case, look closer at the amount of interest you are paying, but in almost all cases, PUT MONEY INTO RETIREMENT IF YOUR COMPANY MATCHES.

I will admit, I was one of the people not taking advantage of this program at work because of my credit card debt for a full year. It was one of the first things that my emoji-bf absolutely would not budge or compromise on. He did not let me make it a choice. He told me it was mandatory. And he was right, I learned my lesson. I have never seen money increase in this way. Here’s the summary, guys: I’m still not rich. But I have been making my loan payments and hopefully I won’t be homeless when I turn 70.

Having a Savings Account: No. Just no. I am trying though, I really am! I already mentioned me laughing at my dad when he asked me about this. It is like a unicorn/phoenix/insert-other-mythical-creature in New York City.

Now that you read all of this hoping for advice on decision-making, I hope you aren’t depressed and pissed that I didn’t give you any. The real moral of this story is: there are no right decisions. Having thousands of dollars, or hundreds of thousands in my case, of loans is going to affect everything you do – every decision you make, from the ordinary errands to the big decisions like whether or not to have kids. Each person handles these decisions differently, and for the most part, there is no right answer (except not contributing to a matching retirement account). Whether or not it makes you feel any better, there are a lot of people struggling to make those decisions right along with you, including me!

Stay tuned in the next week or two for how I am handling my repayment, and which plans I have opted into and out of, in the four years since I graduated law school. Shana Tovah to all of my Tribe members out there (that’s for you, Mommy).