by Repayable | Nov 20, 2017 | #Millenniallife, Advocacy, Loan Forgiveness
Student loan forgiveness is one hotly debated topic. The fact that we have student loan debt at all is probably the only topic debated more.
Today’s post is going to share my personal experience and why I didn’t choose Public Service Loan Forgiveness (PSLF) despite the fact I have eligible employment and it would have saved me tens of thousands of dollars.
This isn’t to say that you have to share my mindset or that you should feel guilty about making the financial choice that’s best for you. This post is here to share a perspective you might not hear from anyone else through my own experience. It’s not about getting you to make a certain choice. It’s about helping you see there are countless alternatives to the standard school of thought so you can give yourself permission to pursue the one that fits your financial needs and moral compass.
$128,000 in Federal Loans at 6.8% Interest
I graduated in 2013 with my Pharm.D and went straight to residency. I made the decision to make income based monthly payments of around $360 per month because there was no way at $47,000/year I could afford the 10 year payments of almost $1,500 per month. After finishing residency and despite paying $6,000 toward my student loans my amount went up to $132,000 because I couldn’t keep up with interest.
It was Time to Go For It
After becoming a salaried pharmacist I had a choice to make. Continue in my income-based repayment plan and wait nine more years for Public Service Loan forgiveness or take matters into my own hands, control my destiny, and decimate my debt aggressively.
Here are the financial deets.
You can do the math, it’s going to cost me $60,000 more if I pay my loans off myself in 10 years instead of waiting for forgiveness. So why the hell would I make this choice?
I Believe PSLF Isn’t Meant for Me
Here’s the thing, whether I pay $1,100 a month (my income-based payment) or $1,500 a month I can still live the life I want to. I’m incredibly fortunate and have a job that fairly compensates me and sets me up for financial success despite my six figure debt.
There are a lot of people who aren’t so fortunate. Think about a social worker who has $57,500 of student loans for their masters degree so they can help the most vulnerable patients in the hospital obtain affordable access to medical equipment, home care, etc. This social worker makes $50,000 annually. They will pay about $79,200 in a standard 10 year repayment plan and around $48,000 under PSLF that’s a $31,000 savings.
Because the social worker makes less than I do as a pharmacist, a larger percentage of their monthly income goes to necessary living expenses. Their forgiven dollar amount is less than mine would be and the savings can ease the real impact student loan debt has on their every day life. More good is done in their life by spending less money.
If I Take PSLF, if Comes at a Cost to Someone Else
The fact of the matter is, when PSLF was designed they had lower debt, lower income borrowers in mind. Unfortunately they attracted a lot of high-debt high-income borrowers like myself and many other pharmacists, physicians, and high income folks working at non-profit institutions. That means there’s not enough funding to go around.
I Care About My Fellow Borrowers, Not Tax Payers
We all pay our fair share of taxes here in the middle class, and if my tax money can be used for something I believe in I don’t mind paying taxes. That’s why I chose not to utilize PSLF because I didn’t need it, I could afford to pay my loans with marginal financial sacrifice. I want this money to be there for people who need it. If I use it, it won’t be.
What About You?
What do you think about the idea of “saving” loan forgiveness for someone who needs it? What do you think about the idea of borrowers who can afford to pay their loans under standard repayment taking advantage of the savings offered via PSLF? Let me know in the comments below or on the Repayable Facebook Page.
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by Repayable | Nov 6, 2017 | #Millenniallife, Getting started
Samuel Zeller
It can feel like the only way to get out of student loan debt is avoid anything fun and only pay down your student loan debt aggressively. Yet you want to live the life you imagined your college degree would earn you, a life without ramen noodles, clearance only clothes, and every night spent home. How do you live your life fully and repay your student loans while making the dollars add up?
Read on for strategies to repay your debt without missing out on everything.
Have a little fun
Repaying your student loans doesn’t have to mean spending all of your extra money on your debt. You can still have some fun, you just can’t have all the fun. If you love to travel maybe a large trip once per year and a smaller weekend getaway are enough to get you through repaying your debt. If you want to go out with friends, decide how often that fits in your budget.
Be conscientious and choose to spend on the fun activities that enrich your life so you don’t look back and feel like repaying your debt was a black hole sucking in all your joy.
Decide if you want stuff
Many people get happiness from experiences rather than things. Decide if you would rather have new stuff or save your money for something else. When you do need stuff try to plan your purchase so it meets your needs and you don’t end up having to buy something similar in a few months.
Instead of telling yourself you can never buy anything fun re-frame it as choosing not to buy stuff because you prefer to spend your money on travel, sky diving, football tickets, you name it.
Plan for your future
When you’re focusing on getting out of debt it can be easy to bankrupt your future self. You know, the one who wants to get married, or buy a home, or retire someday. Be sure to put away for some minimum requirements.
You need an emergency fund. How big of an emergency fund is up to you. You need at least one month of expenses at a minimum, although three months is better.
Contribute up to the max match in your employer-sponsored retirement plan if you can afford it. Don’t leave any of your employer’s money on the table, that is something you will miss out on because you won’t be able to get that match later.
If you have a big life goal like a wedding or a house to pay for decide how far into the future you’re willing to push that purchase. If you’re willing to wait until you’re out of debt then wait. If not, prioritize saving for this now.
You can’t have it all but you can have some…
What is it that you’re most afraid of missing out on? My priorities are getting my employer match, having a three month emergency fund, and traveling at least once a year. I don’t compromise spending in these areas to pay extra on my loans but I will compromise other types of spending such as buying stuff, going out to eat, or getting drinks.
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Weigh your desires against your debt
Think about how much happiness you’re going to get from paying for what you want and then think about how much happiness you get from making progress on your debt. If you don’t get that much satisfaction from repaying your debt think about how much worry having that debt brings you. Choose the option that maximizes your happiness.
Most of us are in student loan debt repayment for the long haul, anywhere from 2 to 25+ years. Think like you’re running a marathon, not a 5K. That means you need to develop a repayment strategy that considers your long term goals and that strategy will be different for everyone.
I want to know what you’re most worried about missing out on because of your student loans? Share your thoughts in the comments below or on the Repayable Facebook page. As always you can email me jeni@repayable.org with any questions, I’m here to help!
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by Repayable | Apr 17, 2017 | #Millenniallife, Getting started, Money Matters
Read this article if you know your total debt load and want to figure out how bad it actually is.
Estimated read time ~ 9 minutes.
By now you’ve figured out how much you owe, what type of loans you have, and what repayment plan you’re in. Now it’s time to assess your financial situation. You have to draw conclusions about the impact your student loans have on your finances in order to set goals that meet your unique needs.
So how do you know if your student loan debt sucks hard or just sucks a little? The answer is the debt to income (debt:income) ratio. This handy little ratio helps quantify your debt load relative to your income. Think of it this way, $40,000 feels different if you make $28,000 per year than if you make $100,000 per year.
A side note that the debt:income ratio I talk about is not the same as the debt:income ratio creditors use to determine your financial viability. This ratio focuses on total student loan debt load and annual income. The common debt:income ratio focuses on monthly debt payments and monthly income and is reported as a percentage.
How to calculate your debt:income ratio.
- Grab your total debt: we’ll use $40,000 for this example.
- Estimate your total annual income: we’ll use $28,000 for this example.
- Divide your debt by your annual income: $40,000 ➗ 28,000
- Your quotient is your debt:income: in this case it’s about 1.4
What does your debt:income ratio mean?
Your debt:income gives you a quick way to assess the affordability of your debt. In general the higher your debt:income the harder it feels to repay your debt. As you make more money it feels easier to repay your debt with the same or even higher debt:income.
For example if your student loan debt is $150,000 and you make $100,000 per year it’s easier to make your payments than if you have a debt total of $45,000 and make $30,000 per year. Why is this the case? Essentially the more money you make, the more you have left after paying for basic costs of living. You may elect to pay for a higher quality of life as you make more but there’s less financial pressure on the basics like groceries, transportation, and health insurance.
What’s a good debt:income ratio?
The answer is, it depends on how much you make. If your ratio is less than 1:1 it will likely feel affordable. However if you make a salary that’s high enough to cover cost of living and then some a ratio of 1.5:1 may feel affordable. Generally, I would aim to cap your debt:income ratio at 1.5:1.
What to do with your debt:income ratio.
So what do you do if your debt:income ratio just isn’t that great? Well, there are only two sides to this equation, your debt and your income. The only thing you can do with your debt once you’ve borrowed it is repay it. The flexible side of this equation is your income.
There are a ton of resources out there on ways to make extra money. You can try to move to a better paying position in your company, switch to a better paying field (that doesn’t require more education and debt), ask for a raise, or start a side hustle. There are a lot of resources out there for making any of these moves. I’ll link up my favorite side hustle podcast at the end of this post.
What did your debt:income ratio reveal to you? Did it bring up more questions than answers? I would love to hear your thoughts on the Repayable Facebook Page or in the comments below. As always you can send an email to me jeni@repayable.org.
Additional Resources
Side Hustle School Podcast
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by Repayable | Jan 9, 2017 | #Millenniallife
“Hi, my name is Jeni and I took out too much student loan debt.”
“Hi Jeni.”
The end of the year always brings me to a state of reflection and goal setting. It’s a predictable, scheduled chunk of time where I look back at what I’ve done and dream of the future I could create.
Part of that reflection and dreaming involves goal-setting. My strategy for goal setting involves writing down a list of smart goals in five major categories; health, finance, relationships, career, and philanthropy.
As I was reflecting on my financial goals, I saw my unmet student loan repayment goal staring back at me. < $80,000. It’s a clear goal. There’s no disputing that I didn’t meet it. My loan balance at the end of 2017 was $85,782… definitately NOT < $80,000 no matter how you slice it.
At first I was OK with it. I mean, I had set an incredibly ambitiouis goal that meant I need to pay off over $30,000 in principal. I went on amazing 16 day road trip adventure to Alaska and I self-published my second book and I still had knocked down over $25,000 in principal. I felt like my money had served me well in 2016.
But then one day, I didn’t feel so good about it.
I started to think about the few times I took out more debt then I needed to pay for tuition. Like the time I unexpectedly lost my health-insurance coverage and had to scramble to set up and pay for the health insurance through the university. Then the time I got really sick and ended up needing 5 procedures and a couple days in the hospital to fix it. That one really hurt because it spanned the end of one calendar year and the beginning of the next. So I had to come up with about $5,000 to cover both years deductibles.
So each time these financial emergencies occurred I had to get back some of the loan money I had returned at the beginning of the semester. To meet the insurance deductibles I took back the $10,000 I had returned after earning a $10,000 scholarship for my GPA.
In total I would say I borrowed around $12,000-$15,000 more than I needed for tuition and books. And I feel guilty about it. My debt would be easier to repay if I hadn’t taken that money. Some of the struggle I face is my own fault.
And the weirdest thing is, it doesn’t matter that I worked two jobs, as many hours as possible. Or that I worked full-time on every break (Thanksgiving, Winter, Spring, Summer) instead of resting or traveling. I blame myself for not knowing how to manage money and emergencies better. In short, I blame myself for not working hard enough and being smart enough to have less debt.
I justify my mistakes as learning experiences and part of college. But justification doesn’t eliminate the nagging in the back of my mind that somehow I should have known better.
But how?
How could I have known better? I was a teenager and young twenty-something. How could I have possibly had knowledge from an experience I hadn’t lived through yet?
I couldn’t.
So here lies the conundrum my fellow borrowers. You can’t know what you haven’t learned. Don’t fault your younger college self for your financial missteps. Don’t carry that guilt with you into your repayment.
Many members of society will tell you that it’s your own fault you have so much student loan debt. And while you are the one responsible for taking out and now repaying all that debt, there were many factors outside your control that contributed to your total debt. Things like your family’s socioeconomic status, year after year tuition hikes, high interest rates, lack of financial guidance, and a lack of financial experience.
So my fellow borrwers, let go of the things that were out of your control and forgive yourself for the mistakes you made.
Forgive yourself for having student loan debt.
Student loan repayment isn’t some punishment you must endure powerlessly, or something shameful to suffer alone. There is help to guide you to your best repayment strategy and encouragement to create the change necessary to change the story for future generations.
Repayable is your guide to the best strategies for repayment based on your specific financial picture. It’s a source of ideas and practical ways you can advocate for change, and it’s a manifesto for borrowers. You can find it now on Amazon.
Do you ever feel guilty about your student loan debt? Share your thoughts in the comments below or on the Repayable Facebook Page.
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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 | Dec 29, 2016 | #Millenniallife, Money Matters
Student loan misinformation abounds. It can be hard to tell what’s solid advice and what’s garbage. Read on for three pieces of advice you can throw away and three pieces you need to listen to.
1. Garbage Advice: Don’t pay on your loans until you have to.
People are telling you to take advantage of the six month grace period or take advantage of forbearance.
Good Advice: Start making at least income-based payments.
You can set up an income-based repayment plan and make monthly payments that won’t crush you. Here’s the thing, if you have a job from your college degree you should be paying on your loans. If you wait, you’re shooting yourself in the foot and accruing tons of interest and you’re also delaying your eligibility for forgiveness (most require a certain number of payments).
2. Garbage Advice: Put as much money as possible into retirement. Or Wait to contribute to retirement until your loans are repaid.
Both of the pieces of information are lacking a middle ground.
Good Advice: Put the right amount of money into retirement.
The younger you are when you put your money in retirement the more opportunity you have for that money to accrue compounding interest. That means you need to put some money away now. If you have an employer-sponsored plan like a 401K you should contribute at least enough money to get their match. Your employer’s match is free money, don’t leave it on the table. However you shouldn’t contribute more than that if your goal is to repay your loans as quickly as possible. You can guarantee that you will accrue interest on your student loans while you can’t guarantee the performance of the stock market.
3. Garbage Advice: Don’t worry about it, student loan debt is good debt.
Let’s get real, no debt is good debt.
Good Advice: Know your number and make a plan for repaying it.
It’s the easiest thing to do, to know your total debt load. It just happens to be one of the most stressful things. Go look at your loan balance and commit the number to memory. Check on it every month and notice what happens to your total amount with time and making payments. What happens when you make extra payments? Knowing your number is the very first step in building a repayment strategy that fits your goals.
There you have it, a little light in the murkiness of student loan debt advice. What do you think? Anything you disagree with? Want to share the worst advice you’ve ever gotten? I’d love to hear about it in the comments below or on the Repayable Facebook Page.
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