Project Net Zero
Money is on a lot of our minds nowadays. Some people are worried how to pay bills this month because the government discontinued unemployment checks. Others of us are on Amazon every day buying our happiness to our doorstop. Either way, one thing is for sure: all of our spending habits have changed this year.
I am incredibly lucky to still have a job, and despite losing all of the income I was bringing in by teaching at the gym and braiding hair, I am still saving more than ever because I can barely spend any money. I’m cooking meals at home, having drinks at home, making coffee at home, not traveling anywhere… basically everything I spent money on BC (Before Covid), I can’t do anymore!
This change in spending habits came at a very interesting time, right after I got engaged. You may remember that my now-fiancé was the first person to whoop my finances into shape in 2017. He works in finance and needed to give me a crash course on how to be fiscally responsible. Now that we are talking about combining our lives and finances FOREVER, we talk about money a lot!
Back in 2017, he was horrified that I had credit card debt (not to mention my sky-high pile of student loans from law school), and he quickly taught me the importance of a retirement account. Also, I didn’t understand the concept of a savings account. I mean I did, but I didn’t have any money to put in said account.
I posted a blog in April 2017 to talk about my newfound addiction to mint.com. I finally gave in to my dad and boyfriend’s pleas to start budgeting and tracking money, and I became obsessed. At that time, I was checking my account every day. Now, it’s a little bit less, but it’s still fun to check! There’s something about watching the graphs populate that makes it fun to save. There is some science behind this; it’s all about the gamification. There are studies proving that this can work, and there are many apps that have been created specifically with this in mind. I love to look at the Trends tab with performance graphs and pie charts, and I love receiving the emails congratulating me about my increased credit score. The whole thing is fun. And since there’s nothing left in 2020 that’s fun, I was checking my mint the other day when I realized something… I’M ALMOST AT NET ZERO. That’s right, my net worth is approaching equilibrium. I told my fiancé and he said that when I get to net zero, we can throw an “Emily is Worth Nothing Party.”
Amazing News: I think I’ll get to Net Zero in a month or two.
Bad News: I was SO PSYCHED about the prospect of a party I didn’t realize that Covid would still be going on, so it was likely to be a party where I wear a party hat in the house and drink alone. Meh.
Anyway, I know you want to know how I got here. When I started using mint in September 2016, I had a net worth of $-107,000. At my lowest in November 2016, my net worth was $-111,612. Talk about daunting. I didn’t understand how I would ever dig myself out of 100K of debt by sticking to a $20/month coffee budget. You may recall my wake-up call was when my dad asked if I needed a payment plan to pay for my $120 state taxes. I was determined to try and get out of debt. Some of these tips and tricks you may be able to use, and some, I realize may not be applicable.
- Track your spending. This is pretty straightforward. Over time, tracking spending does change spending habits. For me, when I realized my $100 bar tab would show up at the end of the month on my mint, I thought twice before ordering another round.
- Get a roommate. I know, this seems dumb but BY FAR the most expensive thing each month in New York is rent. It’s astronomical. I never had a crazy expensive apartment, but I saved $500/month when I moved in with my boyfriend (now fiancé). The other day I added up how much I’ve saved on rent since we moved in together: $21,000 (42 months x $500). That’s a lot of moolah. Maybe you can’t move in with a boyfriend, but seriously consider how much of your paycheck you’re spending on rent before you sign a lease.
- Credit Card Churning, baby! This is a complicated concept for some, but if you’re spending money anyway, spend it in a way that earns you money back! (Spend more and save more! HA) I wrote a whole blog on it before, so I won’t reiterate, but I have probably saved $10K-$15K in travel in the past 4 years by solely using points.
- Set Goals. You guys know I’d rather set a goal than “make a resolution,” but SMART goals work! I had 4 financial goals in 2019, and by putting pen to paper and looking at them periodically, it kept me honest and committed. I surpassed them all! Make sure they are attainable, so you aren’t dejected.
- If you have student loans, try to understand repayment options and interest rates. Again, I wrote an entire blog series on my student loans, so I won’t say it again. But it’s important to know the interest rates of your loans so you can pay off the high interest ones first. Maybe combine it with #3 and get a credit card to pay off some of them.
- Take advantage of any retirement contribution from work. I am super guilty of NOT doing this. When my fiancé found out my work had a matching program that I was not taking advantage of, he literally texted me the next day at work to ask if I had signed up yet. And that means a lot because he does NOT text me during the day (we’ve worked on his texting; it’s gotten better since 2017). If your employer is matching any percentage of your contribution, take advantage. That is literally FREE money.
- Advocate for yourself at work. I’m talking about raises. Have you been at the same job for years without pay increases? You are your own best advocate. You need to figure out how to get compensated for your work. Is this easy? Hell no! It’s super hard. I coach people every day on how to ask for raises, and it’s still not easy for me to do! If you are very lost on where to start, I recently listened to a podcast with Ramit Sethi, author of I Will Teach You To Be Rich, where he laid out a specific plan on how to speak to a supervisor about a raise.
I did all of the things I listed above, and more. Between lack of travel this year and decreased all-around spending, I am almost at Net Zero! Do I still have student loans? You betcha. Almost $100K still. But my retirement is growing, I have a 401K, a Roth IRA, a savings account, the whole deal. And more than the numbers, I feel like I’m in control of my finances for the first time in my life. Do any of you guys set financial goals? What’s the hardest part about it? Have you had any big achievements? What do you do to celebrate?
Student Loans Part Three
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.
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.
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).
Student Loans Part Two A
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. $$ FREE MONEY! $$