Another One Bites the Dust

Student loans can kiss it, because I just realized I've paid off a $12,000 loan.

Yep, $12,000. I feel like it's my birthday. Except it's in January. And I'm not getting any money.

Now, I've talked about student loans a few times, here, here, and here. But in case you forgot, Ryan and I started our marriage with a whopping $140,000 worth of student debt. That's the damage after scholarships, grants, and course fee waivers. What a joy it's been, investing in our future. 

But what an investment! I have two bachelor's degrees and a master's in business administration and Ryan's working towards getting his doctorate.

So in general, we use my paycheck to pay for our normal expenses, which include normal monthly student loan payments. To pay off our student debt ASAP, Ryan and I funnel his checks into paying off loans. Now, you may think that graduate students are very handsomely paid but I can assure you, they're not. In the least bit. 

In my very little free time, I like to recalculate the pay off dates for each of our remaining loans. The loan we're currently targeting is technically two loans and they are scheduled to be paid off on February 20^th. But since I'm all over managing our debt like white on rice, I went in today and saw this little gem!

One of the loans in the account is paid in full! I can't even begin to describe this feeling. It's superb.

Now, if only I could fast forward three years. That's when all of it but $28,000 in subsidized loans are left. Talk about a weight off my chest.

What are you looking forward to? Are you working on your debt?

Student Loans 301: Fun Facts about Repaying Loans

When you start to repay your loans, I have one suggestion. Sign up for automatic payments. You can never forget and your lender will give you a quarter of a percentage off your interest rate. It may not seem like a lot, I save about $100 over the first year of my loans, but it can add up. $100 is a fifth of my monthly payment. I'll take that and add it right back into my payments, kthanksbye.

Which brings me to another point. You can ALWAYS pay extra towards your loans at any time without penalty. This goes for federal or private loans. By law, your extra payment first pays off any outstanding interest on the loan. If there is any remaining balance of your payment it goes directly towards the principal of your loan. Moreso, it goes towards the balance under the highest interest rate. If you have multiple loans in a grouping with the same interest rate, it'll go to the highest balance. 

So let's get personal. When I graduated from graduate school in 2011, I had $51,958.00 in student loan debt. That's not counting my outstanding accrued interest on unsubsidized loans. When loans came due in September I wanted to weep. My monthly payments were, and still are, $630.85. That payment? It's more than my rent. Over the nearly three years I've been paying on my loans, my principal is down to $43,500.93. I've paid $4,490.60 in interest, which is over 50% of the principal I've paid down. 

But that's just me, I have my better half and his loans to top it off. Last year we spent his paychecks, as a doctoral candidate he earns a stipend, on paying off his unsubsidized loans that weren't currently due but had the highest interest rate.

This upcoming year, I tend to think of years in school years, Ryan's paycheck goes to my loans. We're trying to strategically attack our loans and mine just happen to have the next highest interest rates that are accruing interest. Happy that we've paid off those unsubsidized loans collecting interest, we just applied his last check to one of my loans. Can I just say how exciting that is? It may not seem like a lot, but when you layer on an extra payment to your monthly payment, your principal takes a nose dive! I love it! 

How are your student loans? Do you have any? Does it feel like there's ever an end?

Student Loans 201: Repayment

After your finished studying and the days of classes are far behind you, those lovely loans that helped you live lavishly throughout college pop back up. Fortunately, the federal government has a great "exit counseling" when you leave college. It pretty much tells you the terms and conditions of your repayment and your rights as a borrower as well as your newly found adult responsibilities.

For Stafford (or federal loans), there are a few types of repayment plans. They allow for the student to choose the best one that fits their needs.

Standard Repayment is at a fixed payment for 10 years or less. Pro: you pay less in interest; Con: payments are much higher.

Extended Repayment (without consolidation) is only available to those with at least $30,000 in outstanding principal from a single lender. Your payments can be fixed (like the standard repayment plan) or graduated like the fourth option below). The most time you have to pay off the loan is 25 years. Pro: you have lower monthly payments; Con: you accrue much more interest and it takes longer to make a significant impact on your principal. 

Extended Repayment (with consolidation) is very similar to the option above but your repayment term can be extended to 30 years. You do however, have to consolidate all your debt. The Pros and Cons are the same. 

Graduated Repayment begins with lower monthly payment increasing over the next two years. You typically have 10-30 to repay the loan depending on your total principal. Pro: you have lower payments while you're trying to find a job if you don't already have one; Con: you accrue more interest as you're initially paying less towards the principal.

Pay As You Earn Repayment is based on a portion of your discretionary and you must show some financial hardship. There are some additional qualifications but as new borrowers you would hit them. You only have to pay on these loans for 20 years. Pro: after 20 years, you no longer have to pay back the loan and the monthly payments are lower; Con: you can be taxed on the portion of the loan you do not repay and you're paying on that bad boy for 20 years. 

Income-Based Repayment is very similar to the option above. The payments are capped at 15% rather than 10% of  your discretionary income. The other major difference is that you have up to 25 years to repay your loans and after the 25 years you no longer have to pay anything on your loans. Pros and Cons remain the same. 

Income Contingent Repayment is like the two options above but you're capped at 20% of your discretionary income. You have 25 years to repay and anything beyond that time frame is forgiven but subject to tax law.  Pros and Cons remain the same.  

Income Sensitive Repayment is based on a fixed rate of your income, rather than just your discretionary income, and must be repaid in 10 years. The one caveat is that you have to be a federal family education loan program (or FFELP) borrower. Pro: your monthly payment is a little lower than the standard repayment plan; Con: you'll accrue more interest on the plan, costing you more.

Note that most of the plans have a minimum monthly payment of around $25-50. Does that all have your head spinning yet? Mine sure is. 

Student Loans 101: The Basics

My financial dilemma has inspired me to rant about student loans for a few posts. Bear with me. 

I've been debating how granular I want to get into this topic as I'm not sure how much is too much. Here goes...

Here's some basic definitions:

Loan: (noun) something lent or furnished on condition of being returned, especially a sum of money lent at interest. In this case, it's definitely a sum of money.

Principal: (noun) the sum of money lent to a borrower. This is the amount of money you receive from a financial institution to pay for your cost of attendance. 

Interest: (noun) a charge for the use of borrowed money. This is the cost of money to you, or in other words, how much you have to pay to borrow the initial principal. 

There are two major institutions that provide student loans, the federal government and private industry. I want to first focus on federal loans. There are subsidized and unsubsidized loans. 

Subsidized loans are ones that are provided to students who are currently attending school and can be used towards tuition, books, room and board, etc. Students need to demonstrate financial need in order to be eligible.

Unsubsidized loans are very similar but students do not necessarily have to demonstrate financial need. 

The big caveat for these loans is that while the student is attending school full time subsidized loans aren't accruing interest, unsubsidized ones are. The federal government "covers" the interest earned on the subsidized loans so that once your loans hit repayment time you don't have this huge outstanding interest payment before you start hitting the principal of your loan. If it's unsubsidized, interest has been calculated and accruing your entire school career. Here's a little example:

Let's say you borrow $1,000 for your freshman year of college at 10% interest. At the end of your first year, if that loan was subsidized, you'd still only owe $1,000. But if that was unsubsidized you'd owe $1,100 because $1,000 multiplied by 10% (or .10) is $100, plus the initial $1,000 is $1,100. At the end of your senior year, if you decide not to borrow any more money, the subsidized loan would have an outstanding balance of $1,000. The unsubsidized loan would have an outstanding balance of $1,400 (provided the unpaid interest is not capitalized).

I feel like I might have thrown a curve ball at you. What does capitalized mean? Basically, after a certain time, an institution can say, well I haven't received this money (the $100) so I'm going to consider that part of the outstanding loan and charge interest on that as well. Instead of just having $1,000 as your principal amount, you'd then have $1,100. Then they could start charging interest on $1,100, costing you $10 extra dollars a year. You can see how this snowballs out of control when you don't pay your interest year after year and you're borrowing a lot more than just $1,000.

While in college full-time, or at least half-time, your loans are in deferment. Meaning that you don't HAVE to pay on them. You CAN pay on them, but there's no obligation to. After you graduate college, or drop below half-time, federal loans go into a grace period, which is six months, before you have to start paying up. After these six months you have to bend over and give it to the man.

Which is where I am. Once you graduate, subsidized, unsubsidized, it doesn't matter. You're paying them both back and they're treated as equals. It's just for that short, blissfully ignorant time in school that the distinction matters.

Private loans suck and I advise you never to get them. While you can use them on whatever you want, literally you could buy a car with them, private loans have any terms that tickles their fancy. Ryan's private loans were in deferment for five years. It didn't matter that he's still in school, they came due when the five year time frame was up. Private loans typically aren't subsidized and you're accruing interest the entire time you're in school. Another WONDERFUL thing about private loans, they may not lock you into a rate. Ryan's are adjustable and the payment changes every single month.

Sometimes I wish I could go back and smack some sense into him. But isn't the saying, "God bless the broken road?" I love him, but he was stupid with money.

Student Loans & Debt

Late last month, Ryan and I paid off his last unsubsidized federal loan. Yay! Unfortunately, there are five subsidized federal loans that haven't come due and then his two private loans. Then I have my six that are all being repaid.

I feel like I should do a segment on student loans and how they royally suck.

Now, I've read through some high level Dave Ramsey stuff. Those seven steps? Yea, I'm stuck at two. I feel like I'll never be out of it. But maybe it's because I'm not following it rigorously enough. Sue me if I like having some money in my savings account. Have you ever tried that? Were you ever scared shitless that you were going to be super poor?

I want to freakin' buy a house and these student loans are killing my dreams. 

Student Loans and Me

Okay, let's be honest. Student loans suck. I read an article today stating just how much student loan sucks. And how, they're really hurting recent graduates. And I'm one of them. 

If your parents covered all your student loans, I hate you a little. My parents partway helped me through undergrad but grad school was all me. Ryan's parents didn't help him at all. He wanted to go to college so he paid for it. Or shall I say, we're paying for it.

It's tough. When I first calculated our student loan debt it was just under $140,000. Yea. One hundred forty THOUSAND. I cried a little. All right, a lot. I cried oceans. That debt is keeping me from doing things. Like saving for a house, a new car, or retirement. Renting is not my ideal. But I like it a hell of a lot better than living out of boxes under my parents roof. 

Ryan and I budget all the money we earn. His goes directly towards paying down student debt outstanding (but not currently in repayment). My paycheck goes towards current student loans, rent, gas, our phones, internet, food, and insurance. 

Last year, we paid over $25,000 in student loans. $7,500 of that went straight to interest. I'd like to pat myself on the shoulder. But when I look at our still outstanding loans, I cry. Though, I only cry buckets now. It's manageable, right?

Do you have student loan debt? How are you managing?