saving – LongLegsBigCity

Student Loans Part Three

October 12, 2017 1 Comment

You read a few weeks ago that I have almost 100K in student loans. How in the world am I going to pay them off, and will I ever? Listen, I am not a financial planner (go to myfedloan.org and see if you can figure any of that complicated website out), but I have learned a lot through years of experience, and daily conversations with my emoji-bf/in-house finance bro.

Read on, and you will see how I have enrolled in a combination of income-based repayment plans and public service loan forgiveness plans throughout the years. Also, see how I’m making good use of all of those spam credit card offers I get in the mail every day.

This is the last installment in the series, but I will probably write an additional post addressing questions and stories I’ve heard throughout the series. I promise not to use any names! If you have any other questions or anecdotes, please leave them as comments, and/or write me directly. I love hearing your stories and questions!

Part 3 – Paying Back My Student Loans

Soundtrack: Sallie Mae Back by Dee-1 (alternate: She Works Hard for the Money by Donna Summer)

“I got 2 jobs really got on my grind, No time to whine I can’t ride my pine, In the game right now my time to shine, Started paying them loans back one at a time, got them down down down down down down down till I payed them all off. Peace sign.”

Here’s my story:

When I began working in 2013, I had to start paying off my seven different loans. Six direct subsidized and unsubsidized loans from FedLoan Servicing (one from each semester of law school), and a private loan from when I was studying for the Bar, because I was not technically a student (you graduate months before you take the Bar, making you ineligible for “student” loans from FedLoans).

Let’s start with my federal loans, weighing in at approximately 94 grand:

When I finished law school, I was automatically enrolled in a regular 10-year, monthly payment plan, and I was paying $1,200/month. Even at the law firm, that was a serious drain. I could barely pay my rent.

When I realized I was going to quit my job, and possibly never work in law again, I switched to a pay-as-you-earn, income-driven repayment plan, where my monthly payment was reduced to an amount intended to be affordable based on my salary. There are four different kinds of these. Honestly, I was overwhelmed and couldn’t choose, so I called FedLoans and asked their advice. Not a bad idea.

Income-driven plans are where you pay a percentage of your income to student loans, and some of them are designed so you never pay more than 10% of your income, before taxes. A bargain! After 20 years of on-time payments (240 payments), the balance is forgiven by the government. This is helpful since depending on the amount of your loans, sometimes your income-based payments barely cover the interest alone, so the principal continues to grow (DEPRESSING). I told you a few weeks ago about how in 4 years of payments I have not touched the principal. WOMPWOMP.

I knew I needed to build up some savings in case I was going to get less money at my next job, and then I realized I definitely needed to save because I was dangerously close to quitting with no job prospects at all because I was so miserable. By switching to the income-driven payment plan, I was able to cut my payments in half. When I switched plans, I started paying $600/month to the government, and $200 to my private loans. Still seems like a lot? It was. But it was an improvement.

But wait, there’s more. I actually did get a job, and better, it was with a non-profit organization. When I began working for a non-profit, I knew I should apply to the public service loan forgiveness (PSLF) plan I had sort of heard about, but I didn’t. This program forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments while working full-time for a qualifying employer. That is HALF of the payments than I would make otherwise. Thankfully, when I finally did apply, 8 months into my new job, they applied my previous 8 months of on-time payments as qualifying toward my 120 months of qualifying payments. If you work for a qualifying employer and you are currently on an income-based repayment plan, DO THIS NOW.

PSLF has very specific rules and you need to reapply each year to certify that your employer still qualifies. There are some sticky rules; I know a teacher in a public school who teaches special ed, but still does not qualify because her school receives a certain amount of federal funding and the school needs to be low-income. Seems unfair, she doesn’t receive the funding herself, the school does!!

Anyway, the PSLF plan applies to me (at least for now) because I work for a 501(C)(3) organization. However, there is a huge problem that has made front page New York Times news lately, about people detrimentally relying (look at my legal jargon) on this program, but then when they go to cash in on it, they were told it didn’t apply. The program began in 2007, so the 10-year forgiveness is just now up for those who began the program at its inception.

I have been on an income-driven, PSLF plan for 3 years now. At the current time, I pay $450 to the government and $200 still to my private loans per month. You, too, can pay less money in loans by making a much lower salary! Meanwhile, my principal continues to go up, and I’m basically screwed forever unless by some miracle, the PSLF program continues to exist. Then, I will be home free in 7 years, living the dream before I turn 37!

For now, I will just pray that Democrats get their sh*t together and don’t let the PSLF program get trashed by our Commander in Chief.

Now let’s look at my private loans, weighing in at about 6.5 grand:

This is where things get interesting, at least for finance people. For some of you, you’re already fast asleep.

I have more options available to me with my private loans, solely because there are less of them. I started with $12,000, and I have paid off more than 40% (pats self on back). My private loans have always been on the same payment plan; a standard 8-year repayment. On this plan, they would be paid off in January 2021.

This is embarrassing to admit, but my bf asked me my interest rate on my private loans (we talk about money a LOT), and I said I didn’t know. He couldn’t believe I didn’t know, but I said, “what does it matter? I pay what I can, they charge me as much as they f*cking want, and that’s the way the cookie crumbles.” Clearly, I have some major emotional baggage tied to these payments and I don’t love to talk about them (check out the first post in this series on the emotions attached to having loans).

Anyway, I honestly did not even know where to find my interest rate, but I started by logging into the website for my private loans. I hadn’t signed into the site in over a year. It’s on auto-pay, so why should I? More emotional baggage there; it’s easier to ignore and pretend it’s not there. In fact, it turns out I am not alone at all with this attitude, as more and more borrowers choose to remain ignorant of the details of their loans. According to a Citizens Bank survey and Forbes article:

45% of survey respondents didn’t know what percentage of their salary went to paying off their loans.
37% were unaware of the interest rate on their loans
A very oblivious 15% were even unaware of how much they owe.

But knowing your interest rate is especially important, because then you can look to see what you are paying toward your principal, and you can also see if there are better alternatives available. When I finally found my interest rate for my private loan, it turned out to be 8.49%. That’s pretty high. I pay $191/month in private loans, and at the time I looked, $41 of that went toward interest. That was 21% of my payment that did not even bring down my principal. That is $600 a year for INTEREST. WTF? Luckily for me, I have very good credit. Ok, it isn’t luck, it’s more like, “thanks to my dad opening credit cards for me since I was 6 months old, I have very good credit.” I have mentioned this before. Thanks again daddy!!

Thanks to this great credit score of mine, I get credit card offers in the mail daily. I am not exaggerating, I get one in the mail every single day. In the past, I threw them directly in the trash. Emoji-bf told me to start saving them. One month went by, and I had 30+ offers. We went through them and found a card offering a 21-month, interest-free, 3% balance transfer, with $0 annual fee, the Citi Diamond Preferred. That means I could transfer money to the card up to the credit limit, pay a one-time, 3% fee, and then not pay interest for almost 2 years. Emoji-face suggested that I transfer my student loans to the credit card. I did not know this was a thing. In fact, I asked him if he was f*cking with me. But no, it is a thing, and a really good thing, at that. You can transfer money from anywhere, including student loans! More math coming up, beware.

At the same time as I transferred my balance to a credit card, I opened an American Express high-yield savings account with 1.15% returns. Basically, since I was paying $41/month in interest, if I didn’t have to pay that for 21 months, I would save $840. That is $840 I could put in my savings account and ultimately pay toward the principal instead of throwing it down the drain. Not to mention the difference between my minimum credit card payments versus the minimum payment I was making on my loans. If I make minimum payments of $100/month to the credit card (it will actually go down over time), and take the $91 difference ($41 went to interest, $50 to principal) from my loan payment and instead put it in my savings account, by the end of the 21 months, I would have almost $2000. Plus, it’s earning something in the savings account.

The thing to remember here is, if you haven’t paid off your loan by the end of the no-interest period, you may be screwed by the interest rates that kick in. If you do this, make sure you have enough to pay it off by the end of that period. In my case, I have $6,713 in private loans, so I will need to make sure I save the difference, $2,689 (6,700- (191 x 21)) by the end of 21 months. If I can do that, my private loans will be paid off by May of 2019, instead of January of 2021, just by taking advantage of a credit card offer I was going to throw in the trash.

That seems like a LOTTT of money to save, but if you divide it up over 21 months, it’s only $126/month. Less than 3 extra spin classes to teach per month. Or one spin class and one less drunk brunch. That is doable. However, it is NOT doable if I go on vacation to exotic places.

The best part of transferring my private loans to the credit card? All of the notifications that my loan had been paid off. I got an email from mint.com, I got an email from Wells Fargo, I got a letter in the mail from them, AND I got a check because I somehow OVERPAID them ($6.27… every bit counts!). Imagine the feeling when I actually pay them off instead of just transfering them to a credit card! I bet it will feel even better. 20 months to go.

$6.27 from Wells Fargo to me for my overpayment!

Conclusion to this series, or VERY long story short: I sort of screwed myself by going to law school if I planned to be a world-traveler at a young age. But I am working on digging myself out. Working very hard, I might add. I’ve got my hustle, I’ve got my side hustles, I’m churning multiple credit cards, and I am learning to LOVE the taste of eggs ($1.99/dozen!). In the meantime, I will watch all of your beach vacations on Instagram from my incredibly overpriced, New York apartment.

Long Legs and other Personal Problems

Student Loans Part Two B – Decisions, Decisions, Decisions

September 21, 2017 5 Comments

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).

Student Loans Part Three

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Student Loans Part Two B – Decisions, Decisions, Decisions

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