Sunday, March 6, 2011
Student Loan Debt
Warning, this post is filled with big, scary numbers.
Let's be honest. Mike and I have over $73,600 in student loans. And it's still rising.
Given how we arrived at this point and that this represents 2 people's education, I'd say that's actually not a bad number. Four specific factors contributed to this total amount.
1) We did not have the luxury of parents contributing to our college education (which is simply a factual statement). Taking out loans was and is the only way we can afford it. Complete reliance on loans is a surefire way to racket up your debt.
2) While I worked 2-3 jobs at a time as a student, it was never enough to pay for college. I also took high class loads and was in a ton of extra curricular activities that didn't leave much time for working. So in addition to tuition + room (or later rent), we always took out extra for books and living expenses. Treating a refund check like income is not advised.
3) I went to graduate school. Even though I went to the same college as my undergrad, those two years cost the same as my 4 undergrad years. And by that time, we weren't taking out extra for expenses.
4) Mike is currently a student at a private college. So our loan total isn't static. We are continuing to take out loans as we speak.
So how do we feel about our debt? It was necessary. There's no way we would have gone to college otherwise. Did we make some mistakes? Yes. Did we learn from them and now I'm advising my sister on how to avoid them? Sure thing. Is it uncomfortable to know that debt will be around for some time and hence our educations will end up costing thousands of dollars more than their actual price tag? Absolutely.
In the end though, it was worth it. I was employed right out of grad school. Both of the jobs I've held are related to my degree, which is an absolutely luxury. Mike got a AAA that granted him junior status at his current college. In a tough economy, he absolutely needs a BA since no one wants to count his military experience. Higher education was our path to upward mobility, or at least to not have to work at McDonald's.
I could go into a long discussion about the true price of higher education and whether college is worth it for everyone and yada yada, but the fact is, this is our reality. We made these decisions and that number is all on us. For better or worse. Until death or payoff do we part.
So in preparation for taxes, I became curious about how well our student loan debt reduction is going. We've been paying on these suckers for about 3 years now. That's 4 payments every month, over $500 in total. I keep tabs on the overall balance and how much interest accrues every month, but I'd never crunched the numbers to see how much we were actually paying the total down.
I almost cried when I saw how little progress we're actually make. Here's our loan profiles for the last year.
Jennie's federal loan
December 2010 balance: $24,216.33
Total 2010 payments: $2,405
Interest paid: $1481.22
Balance paid: $923.78
Loan lowered by 3.6%
Jennie's Iowa student loan
Total payments: $1977
Interest paid: $1076.62
Balance paid: $900.38
Lowered by 3.8%
Jennie's Citibank loan
Total payments: $1420
Interest paid: $509.14
Balance paid: $910.86
Lowered by 6.3%
Mike's federal loan (prior to starting Upper Iowa)
Total payments: $960.00
Interest paid: $420.62
Balance paid: $539.38
Lowered by 9.2%
Total payments: $6,762
Interest paid: $3,486.98
Balance paid: $3,274.40
Talk about a wake up call. We paid more interest than we did on the balances. We only reduced our total loan debt by 4.7%!
Part of this is because our interest rates are high, between 5-7% for each loan. Second, my federal loan payment is an interest-only payment. We can't afford to do the standard $325 a month, so I'm on the lowest payment because of our income.
So what's a couple on a limited income supposed to do? Well, that sad news is nothing. Not for this year at least. We have so little wiggle room that this cannot be an issue or goal for us as long as we only have my income. This makes me a little sad, because we really want to make better progress than a measly 4%. But again, you can only do what you can only do.
They say student loan debt is good debt. I say that's hogwash. No debt is good debt, especially when it prevents you from doing other productive things with your money. Like having a savings account, funding your retirement, purchasing a car, or fulfilling a down payment for a house. All of which I feel our loans are preventing us from doing. Just because student loan debt is less detrimental than credit card debt doesn't mean it's good. Only less worse.
That being said, I try not to worry about this a lot. 2011 is the year to reduce our credit card debt. 2012 will be another year. Even though we're having to increase the loan totals for Mike's schooling, we're only taking out what's needed for tuition. And that loan payment is now in deferment, which we're taking advantage of. That's a $75 commitment that can now be rerouted to credit cards.
The one thing we're certain of is that we don't want this debt to hang around into our 40s and 50s. We're both resolved, when finances allow, to go after the loans aggressively. For example, if Mike were able to get a $45,000 job, we could live on that and use my $24,000 to go directly to loans. Seriously. Doing that could eliminate that debt within 4-5 years. That's comforting to know.
Funding education can be tricky. All I can say is that there are smart ways to use loans. Co-signers can significantly lower your interest rate, take only what you need for tuition/boarding, and always see who has the lowest interest rate.
Lastly, open your mail! Because I knew I was taking out large amounts, I literally did not open any loan mail for 4 years. I kept it in a box and opened it at graduation. Talk about sticker shock. I wonder if I could have shaved off a few thousands dollars off my total if I had been more aware of my actions.
The best way to keep tabs on how much you owe is to actually keep tabs on how much you owe.