by Repayable | Jan 1, 2018 | #Millenniallife, Mindset
Happy New Year! Today’s post is all about taking down your student loan debt in 2018 by setting a realistic goal.
Estimated read time ~ 2 min.
2017 is over and the closing of the year often drives us to reflect. Most of us make a final check in with the goals we set in 2017 to see how we measured up.
There are the goals we didn’t meet and we’ll say “Meh, oh well.” because the goal didn’t mean much to us in the first place. Then there are the goals that we crushed because they connected with the very fabric of who we want to become.
How does a person go about setting the kind of goal you crush? The kind that is realistic enough you’ll follow through but challenging enough to bring you one step closer to your envisioned self.
My strategy involves setting specific goals across five categories that matter to me and create a life I want to live. My categories are: Philanthropy, Health, Relationships, Career, and Finance.
Interestingly, this year I nailed my philanthropy and relationship goals 100% and completed 75% of my health and career goals. But you know what I struck out on completely? My financial goals!
Yep, the girl who spends her free time tackling student loan debt struck out on her student loan repayment goal to have less than $50,000 (I currently have $64,744), I missed my savings goal by about $420, and I didn’t even come close to my additional monthly income goal.
Why did I strike out on these goals? The savings goal was a failure of planning. The other two goals were really massive and required me to have major income growth to achieve, and while I did experience growth I didn’t experience massive growth.
So am I a total failure? Nah, I had an amazing 2017. Unmet goals give me fodder for 2018 goals and ideas for making them more attainable.
I want to help you set a realistic student loan repayment goal for 2018 and take you all the way to actually getting started on that goal. That’s what the Repayable New Year’s Resolution Student Loan Challenge is all about.
At the end of the five day challenge you’ll have a unique student loan repayment goal that you’ve actually made progress on. I’ll be going through the challenge with you every day so you’ll have a real life example of goal setting. Each day you’ll get an email from me listing the day’s challenge.
Do you want to be one step closer to your debt free dream? Sign up here or follow me on Instagram @therepayable. Challenge starts today!
Cheer’s to an awesome 2018!
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by Repayable | Nov 27, 2017 | #Millenniallife, Mindset, Money Matters
Student loan stereotypes are often held as truths near and dear to the hearts of non borrowers. Today’s post is here to crush those stereotypes into oblivion with widely available data packaged up in a usable form. Why? Because if folks run around believing stereotypes instead of reality it makes solving student loan debt much harder.
Cheers to the facts so you can slay the student loan stereotypes. Estimated read time < 5 minutes.
5. You have debt because you didn’t work during college.
- In 2015 43% of full-time college students and 78% of part-time college students worked.
- In 1980 the inflation-adjusted minimum wage was $9.83/hour. Currently the minimum wage in Wisconsin is $7.25/hour.
The buying power of minimum wage has significantly decreased since 1980.
4. You borrowed mostly for booze and spring break.
- According to a 2016 Student Loan Hero survey 79.8% of students said they did not use student loans to pay for things other than educational expenses, such as vacations, dining at restaurants, or entertainment.
- The 20% of students who used their student loans for other expenses were more likely to use the money to pay for cell phone bills and car payments than for vacations and alcohol.
Eighty percent of students said they did not use student loans to pay for things other than educational expenses.
3. You should’ve gotten scholarships to pay for college.
- Annually the private sector offers around $3 billion dollars in private scholarships.
- There is around $14.6 billion available in Pell Grants and another $20 billion in institutional grants.
- This fall approximately 20.4 million students attended college. That’s an average available amount of around $2,000 per student per year if all college students split up the available funding.
If the available grant and scholarship dollars were divided among all college students, each student would get around $2,000 per year.
2. You borrowed so much because you went to a private college.
- In 1980 the inflation adjusted cost of tuition and fees + room and board at four year public institutions was $7,015.
- In 2015 the cost of tuition and fees + room and board at four year public institutions was $19,189.
The inflation-adjusted cost of tuition and fees plus room and board at four year public institutions has increased 274% since 1980.
1. You have student loan debt because you were irresponsible.
- The annual cost for tuition and fees plus room and board at a four year public institution is over $19,000.
- The minimum wage is $7.25/hour in Wisconsin.
- The amount of scholarship and grant money available if split evenly among borrowers is about $2,000.
- In 2017 if you work at minimum wage for 20 hours per week (+$6,963 after taxes), obtain scholarships and grant money annually (+$2,000) and attend a public 4 year institution (-$19,189) you won’t have enough money to pay for college let alone books, and other necessary expenses.
- Objectively speaking for the average student working part time and obtaining scholarships and grants is not enough to cover the actual costs of attending college. The shortfall is over $10,000 every single year. After four years that’s a $40,000 deficit yet the average student has only $30,000 in student loan debt. Students and their families are being creative and working hard to minimize the amount of debt they borrow for college.
Despite working and obtaining scholarships the estimated shortfall for four years at a public institution is $40,000.
Times have changed, this is the true picture of paying for college.
In 1980 you could work a minimum wage job for $3.10/hour and pay $3,499 each year to attend college. That means the college student had to work 22 hours per week at minimum wage to pay for their costs.
Today you could work a minimum wage job for $7.25/hour and pay $19,189 each year to attend college. That means the college student had to work 51 hours per week at minimum wage to pay for their costs.
Costs have gone up and the buying power of minimum wage has gone down. The burden of student loan debt is not a result of work ethic, partying, failing to apply for scholarships and grants, attending private college, or being irresponsible. The burden of student loan debt is a result of increasing costs.
You’re a smart repayer who knows their facts and doesn’t take crap from anyone. If you learned something new please give this post a share and help slay the stereotypes!
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by Repayable | Dec 30, 2016 | #Millenniallife, Mindset
New Year’s resolutions. Are you all about them? I’m not all about a resolution, I’m all about goal-setting. Some might argue it’s the same thing but check out the different definitions.
Resolution: a firm decision to do or not to do something
Goal: the object of a person’s ambition or effort; an aim or desired result
The reason I set goals instead of make resolutions is because a goal is something long term that one achieves from making many small decisions and taking many actions over the course of time. A resolution is sort of like, oh you messed and did or didn’t do something you resolved to do might as well give up. Goals are longer term and if you hit stumbling blocks you have an opportunity to try a new approach or shift the goal.
So with my rant about resolutions let’s get right into the two student loan goals you can set for 2017 that will begin your path to student loan liberation.
1. Know your number.
You will hear me say this time and time again but I mean it. You should know exactly how much money you owe. None of this, “I owe about $70,000” garbage. How much exactly do you owe? Not knowing your number is a form of denial. Whether you own that number or not, the interest will own you. So go to your loan servicer right now and look at your amount. Commit it to memory and look at it after each and every payment.
The reason you need to know your number is so you can pick a repayment strategy that makes sense for you. You need to know details like how fast your interest accrues, how much you owe in private vs federal loans, and what your debt:income ratio is.
2. Set a specific repayment goal.
You can set a goal to refinance, choose a different payment plan, pay off a certain amount, etc. Any of these goals have specific measurement so you can see if you met your goal at the end of 2017. Choose a goal that makes sense for you. If this is the year of building up your emergency fund it doesn’t make sense to set a dramatic dollar amount repayment goal. Be reasonable but push yourself to build forward momentum and take charge of your student loan debt.
What are your goals for 2017? Student loan related or not I would love to hear them! Comment below or share your goals on the Repayable Facebook Page. I’ll be posting a video tomorrow of my 2017 goals and reflecting on the progress I made on my 2016 goals.
Repayable is being released January 1st, just in time to set yourself up for a year of student loan success. You can pre-order the e-book here and the print version will be available for order Sunday January 1st!
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by Repayable | Sep 19, 2016 | Mindset, Money Matters
You’ve heard a lot about saving for retirement. Terms like compounding interest, 401K, IRA get tossed at you on the daily.
But let’s get real, a lot of the advice is garbage once you start to look at it in light of massive amounts of student loan debt.
It’s all half-baked advice from people who never had student loan debt. Let me expose the most common piece of half-witted advice so you can find the piece of truth that applies to you.
The folks giving you this advice aren’t stupid, they’re usually quite financially literate. They typically want the best for you and think they’re giving you rock solid advice. The fact of the matter is what used to work isn’t going to work in the era of crushing student loan debt.
You’ve got to put everything you can into your 401K because you get compounding interest.
What’s the big deal about compounding interest? Well, it’s awesome. Let’s say you put $1000 in your 401K, you make 1% interest so now you have $1010. That means next year you even if you don’t contribute and you earn 1% you’ll make $10.10 instead of the $10.
Ok so you can see with that small amount of money compounding interest isn’t super sexy. But if you have enough money and enough interest you can stop contributing and the interest will continue to build off itself. This is why the saying “the rich get richer” is so true. When you have enough money invested you can withdraw some money and still see your money grow (FYI this is the actual goal of retirement so you never run out of money).
Therein lies the first hole of the argument for throwing everything you can at a 401K. When you’re throwing peanuts in, the compounding interest isn’t doing you a ton of favors. If you had nothing else to spend your money on that might make sense, but remember you have lots of student debt.
Compounding interest works on your student loan debt too. When your federal loans are sitting around earning a pretty 6.7% that compounds on itself too. If you can’t keep up with your interest payments your loan amount will continue to exponentially increase. This is how people get into trouble with credit card debt.
The more you can pay on your loans the lower the principle and the less interest you’ll pay. Essentially it’s the inverse of compounding interest. Perhaps I should call it decelerating debt.
So what’s a financially savvy debt-strapped millennial to do?
Contribute only enough to your 401K to get your employer match. Do not contribute above that amount until your debt is paid off.
You won’t hear this advice anywhere else. People are illogical and will advise you to seek out the compounding interest of the 401K without acknowledging the impact of the compounding interest of your student loan debt. Let me break it down.
Why should you contribute to a 401K at all?
- You want to retire some day.
- Employer match money is free money.
- Match money doesn’t depend on the stock market.
Why not contribute extra to your 401K?
- You are not guaranteed a positive performance out of your 401K. In 2015 I got a 0.75% return, a colleague got a negative return -0.47% aka he lost money.
- You are guaranteed to earn interest on your student loans at your prescribed rate (6.7%)
- Assuming your debt and 401K have the same rate of return your student loan amount is probably higher than the amount in your 401K. Now you have a dichotomy where the total dollar amount of interest for your debt is more than the total dollar amount of “interest” (aka rate of return) of your 401K.
- That looks like this: $100,000 in student loan debt at 6.7% vs $10,000 in 401K at 6.7% rate of return.
- Student loan debt -$6,700 401 K +$670 net amount on the year -$6,030 … ouch!
The Retirement Advice You Need to Listen To
Contribute enough money to your 401K to get your employer’s match. Pay the rest to student loans.
- If you can’t afford to contribute enough to get the entire match contribute 1% of your total income to get yourself in the habit of contributing while still getting some of their match.
If you don’t have an employer sponsored 401K option open up an IRA. Again aim to contribute 1 % of your income to this to build the habit. You’re not leaving anyone’s money on the table so you will be better served by aggressively repaying your debt.
If the amount of money in your retirement account is equal to the amount of money you have in student loan debt consider your options carefully. It is my opinion that you will be better served by eliminating debt. However mathematically this is tough to objectively quantify. Here are some things to keep in mind.
If you eliminate debt early:
- You can focus on contributing to retirment and contribute maximal amounts of income
- You have the opportunity to find additional sources of investment which diversify your financial portfolio and develop yet another income stream
If you contribute aggressively to your retirement:
- Early investment maximizes the potential for your interest to compound which means contributions made early on have more impact than those made later
Retirement seems like a worry for your future self to deal with but it’s something you need to develop a strategy for today. There are many individual factors that play into retirement including the amount of student loan debt you have and the interest rate on that debt.
There are many ways to look at issues of finance and unfortunately these have not yet been tailored to the needs of our millennial generation. I hope this post shed a light on the impact student loan debt interest has on the ideal strategy for retirement.
The advice I gave in this article is pretty unconventional. I would love to hear your thoughts, what you agree or disagree with in the comments below or in the Millennial Maxims Facebook Group.
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