Student Loan Update – April 2017

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When I graduated in May of 2017, I chose not to think about my student loans. It was a hot humid day but people traveled from different states to come see me complete another milestone. I was juggling full time work and a part time MBA program right when my husband was settling into a new job. I had a lot to be thankful for and a number of people were proud of me. The Department of Education was going to grant me 10 years starting in December 2015 to agonize over student loans but I was never going to get another graduation day.

I picked up my diploma after the ceremony and I sat in the front seat of my husband’s car running my fingers on it back and forth as my parents sat in the back. I was pretty impressed with myself. Not in a gloating kind of way but more so in a “I actually did it…” Almost as if I couldn’t believe it.

The next day, things went back to normal and I decided that the honeymoon period with the diploma was over. Real world responsibilities required me to know what my balance was and what my monthly payments were projected to be. It was nothing that I could not afford but it was painful. Over $350 a month a and $40k+ balance. I could get a whole new car with that! I devised an aggressive pay down plan as follows:

  1. Start paying immediately rather than waiting for the grace period
  2. Apply all raises to the monthly payment and all bonuses to the balance
  3. Apply all tax refunds if any to the balance

3 simple steps. The toughest part was the discipline of not eating out as much as we would have liked and not splurging at the mall. However, 23 months later, that plan has worked so well that I am dancing for joy.

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In case you are having trouble reading the small font, this says:

Current balance $11,641.17 & Due date 7/18/2020

While there are no guarantees, these numbers indicate that I am likely on track to finish paying the debt off by the end of the year if all goes as planned. That will be 8 years ahead of schedule. This is more than I could ever hope to achieve. When I said I was determined to pay and save myself an astronomical amount of money in interest, I was not joking.

I am grateful for the discipline I have that allows me to focus on long term independence goals rather than instant gratification. I’m also thankful that I have a supportive husband who understands my goals and can see my vision for our family. Some people would have valued the high life over a debt free life and it could have been a source of friction. Instead, he trusts my judgement and is happy delaying a little bit of gratification in favor of peace of mind.

Dear DOE, thank you but no thank you. I will decline your offer to take a 3-year hiatus from my obligation. You’re going to collect these payments and you’re going to like it. But better yet, you will set me free.

 

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The Lesson from For-Profit Colleges

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In case you’ve been in Antarctica with limited cell service, you’ve heard of the disgraceful collapse Corinthian “college”, the corporation that has been mascarading as a higher education institution for several decades, preying on low-income, usually minority, individuals promising them a way out of dead-end jobs, while having inadequate accreditation and saddling them with absurd amounts of debt.

The reason why that organization was so successful at tricking and trapping students is because we have all these proven studies that show college graduates earn way more than those with high school diplomas over a lifetime. This company used that information to lure students and convince them that paying for useless training was an investment in their future, even when they knew that their own job placement and salary statistics were overstated/misleading.

While we know that college graduates do earn more on average, that doesn’t change the fact that a degree is not a universal guarantee of high earnings. Other factors are crucial in determining your earning potential, such as your grades, your major, the industry you choose, the reputation of your Alma Mater, your professional network/contacts, the overall strength of both the economy at the national and local level. Matriculation is only one of the necessary steps.

But this is for those who want to go to school. What about those who don’t want to go to school? Those for whom traditional schooling isn’t possible either because of their limited capabilities or their lack of interest in lengthy papers, class presentations, and final exams? Should we as a society simply accept that they won’t be high earners? Even if we settle for that, it doesn’t mean they would. That unwilllngness to settle for minimal wages due to lack of formal training, combined with our complacency at creating non-traditional educational paths to help them develop useful skills contributes to turning these poor students into prey.

Our society doesn’t respect or value non-traditional schools. We don’t place any value on trade schools or alternative secondary education as we should. Not long ago I found out that my cousin may not be on track to graduate on time and may have changed majors for the third time in 3 years. He also made some comments that a discerning ear would understand that he is suggesting he’s not interested in traditional schooling. As someone with a graduate degree, I know that few people will make it far in life if they limit themselves only to a high school education. That is after all why I sacrificed my time and invested thousands into going back to school even with a full-time job on my plate. However, I would not dare ask him to explore alternative options as I know this would upset my family greatly and, while it sounds extreme, might even ostracize me.

While my cousin doesn’t attend a for-profit school, if he does not graduate, I do not see how the results will be much different. He will still be saddled with debt from 3 years worth of tuition attending a school to appease his family, while having no worthwhile degree to improve his earning potential. If anything, this might even put him in a less favorable position. These questionable schools have a track record on preying on students and they subsequently lost their accreditation and have been filing for bankruptcy left and right since 2015. Unlike them, he attends an accredited school with acceptable retention and graduation rates. He will not get the same sympathy victims of Corinthian Colleges got. He will not be able to sue, he will not get his loans pardoned and he will not be given the benefit of the doubt.

So what could he have done? Not going the traditional path would not necessarily doom him to predatory for profit schools. He could have done full-time sales, started in real estate, became a contractor, etc. Although these have the potential of being good paying jobs for those who are dedicated, they don’t have the “prestige” of saying you have a bachelor’s degree. They don’t put you on a path of becoming a physician or attorney. And to those who still insist on valuing people based on 1950’s standards, they will impose restrictions on their children that drive them to make life ruining decisions.

Path to a Million: 2016 Q4 – Results

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In this post I talk about why I wanted to make my net worth public. Here are the actual numbers and below I’ll discuss what they all represent. Since this is the first time I am posting this, I will give some background information below. Going forward, I will only be posting the statement of net worth and referring to this post for the details.

 

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On the asset side

Liquid assets represent cash and investments that can be easily accessed in the event of an emergency.

Personal property includes things that have been appraised but aren’t real property and aren’t easily accessible. That includes jewelry, furniture, etc.

Real estate is pretty self-explanatory.

 

On the Liability side

Both the HELOC and the Consumer loans seem like “too good to be true” deals, however they are state and federal subsidized loans for energy efficient improvements on our primary residence. The HELOC is for the solar panels and the consumer loan is for energy efficient central AC.

The student loans are what they are. But if you want to know how determined I am to pay them off, I graduated with over $45,000 in 2015, and I’ve paid down over $10,000 in principal payments this year alone. So I don’t anticipate it will be weighing around my neck much longer.

2 of the 3 mortgage loans are on rental properties which are cash flowing well and do not require us to pay anything out of pocket.

I do not have, nor have I ever had credit card debt.

Net Worth

Pretty self-explanatory as well. It’s the difference between what I have and what I owe. While most of my NW is tied up in real estate, a significant portion of the real estate is income generating. By no means am I living in a $1 MM house. My goal is to increase my net worth by $75,000 by this time next year. While a good portion of that gain will be through eliminating my student loans, I think there will be several other income generating, savings and investment opportunities in the new year. Paying off the student loans alone will make a significant difference. Those $300 that are currently being eaten away by the loans, can be funneled to other projects and create a snow ball effect both in savings and in investments.

Nothing happens by luck. It takes faith, hard work and discipline. I am making a plan preparing for a prosperous 2017. I look forward to checking in for the first quarter.

 

It takes Luck to be Successful

Don’t mind me; I’m just practicing my click-bait titles…

It is often said that if hard work was the only way to success, day laborers, farmers, etc. would all be millionaires. Hard work is a key to success. No one (except maybe lottery winners) has ever achieved anything in life by sitting around the house doing nothing. Whether it’s Harriet Tubman freeing slaves, Mark Zuckerberg founding Facebook or Obama becoming president, you won’t hear about high achievers sitting on the couch with a lot of free time on their hands.

On the other hand, we shouldn’t be insinuating that anyone who didn’t find great professional or financial success failed to do so because they lacked discipline. Many of those people lacked opportunity, money and some were lazy and poor planners, but some lacked good fortune.

I say luck because many of my peers who came from similar backgrounds as myself are doing very well while others, who didn’t work any less hard are doing terribly or did so terribly that even after being back on their feet are playing catch up.

I want to tell the tales of 3 of my peers, all of whom graduated college within a year of  each other and a year of the Great Recession, eliminating the disparity that graduating during prosperous times would create.

All 3 are women of color, giving them the same likelihood of facing sex and race discrimination in academia and the workforce.

All 3 were traditional students with parental support (albeit to various degrees), no teen pregnancies, criminal past, etc.

While they remain anecdotes, I wanted to provide that small glimpse of their backgrounds to demonstrate that some of the major things that tend to create inequalities were not factors or were the same for all women.

I’ll start with the one that graduated in 2007. That was pre-recession but her lack of meaningful experience limited her opportunity to find full-time employment in time before Sallie Mae came calling. She was a little stubborn about getting internships in her field because they paid less than the temp-jobs she got that were completely unrelated to her major. She eventually found a job a year later after she began managing her salary expectations a little better. She built her savings and got her own apartment. She was no longer living on whatever allowance her parents could spare but she wasn’t living a life of prosperity either. For example, she couldn’t afford a car in any state (new or used) because the added cost of fuel and insurance was too much for her tight budget to bear. Some days she didn’t run the heat to keep utility costs manageable.

A year later, Peer #2 graduates. All is well.  At least for a few months until the market crashes and Lehman goes out of business on a humid august day. It’s pandemonium and lay offs start rolling in. She got to keep her job but it was only a matter of time before she too was offered a severance  package. She takes it, finds a job in retail and applies to graduate school, but she falls behind on her bills. Shortly there after, she lands another, better paying job which offers to pay for her to finish her degree. She says goodbye to retail for good as she graduates, gets promoted and gets married. Her now-husband who also has a good paying job brings in solid additional income that allows them to move to a really nice part of town and she keeps thriving. 8 years after undergrad, she has a happy family life, has a successful career and is financially stable.

Peer #3 is also a 2008 graduate. She’s an outgoing creative woman with a heart of gold. She’s generous to a fault. She’s active and participates in any and all activities that could enrich her undergraduate experience. She had lofty aspirations so she travels internationally and tries to get internships at various prominent organizations. Unfortunately her field of study is narrow and doors are closing fast. Her field is in demand but only for the most seasoned workers. There’s no desire to invest scarce resources into building inexperienced people. She bounces from paid internship to paid internship until things get so bad that she ends up working at the mall, focusing on just making a living since building her resume has done little for her career prospects. As a result of her basic costs (which are relatively low given that she still lives at home), she is unable to make her student loan payments which go into default and double in size after capitalized interest and late fees. 8 years after graduation, she is still making minimum wage and owes more on her student loans than she borrowed.

Next time you see someone struggling, don’t assume that they’ve done everything wrong. It could very well be that the necessary opportunities for success didn’t present themselves.

Student Loan Update – September 2016

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Boy, has it been a while since I’ve blogged. It’s been a really busy summer for my family, and while some of our activities haven’t all been fun, these past few months have been really good for us, both on a personal and financial level. As I previously mentioned, we were working on getting our solar panels up and running and I have good news on that topic, but today, it’s about the thorn in the sides of millions of degree holders: Student Loans!

I decided that now would be a good time to do an  update as I am 3 months shy of the 1-year anniversary of when my loan went into repayment and 3 months past the 1-year anniversary of my graduation from Business School. I have been super aggressive about paying my loans as well re-amortizing my balance to update my minimum monthly payment and it has paid off. Here are the results.

12/18/2015 (initial terms) 3/29/2016 9/27/2016
Monthly Payment  $                  395.00  $                         305.00  $                         290.00
Principal Balance  $            39,748.00  $                   27,301.00  $                   24,656.00
Repayment terms 120 months 114 months 109 months
Interest Rate 5.41% 5.16% 5.16%

Monthly Payment: I have decreased my monthly payment by over $100/month in less than a year. I am free to continue making the $395 payment, however, the extra now goes towards paying down the principal which will save me a bundle on interest. It is particularly important for me to save money on interest (besides the fact that it’s good money habit), as my income rises and my ability to deduct the interest phases out. In addition to interest savings, if I run into difficulty and I need to redirect those funds elsewhere, that’s fine!

Principal Balance: That’s good old discipline and self-control at work. Every windfall whether it was a tax return, bonus or raise, it was directed to making payments in excess of principal. That’s a nearly 40% pay day and an average payment of over $1,600/month! Has it been easy? No, but I will reap the rewards 10 folds when I’m free in less than 2 years.

Repayment Terms: That’s how long my loan servicer planned for me to take to repay them: 10 years. I don’t think so. Besides a loan securing tangible, real assets, I will never have a decade-plus loan. I have not only cut my monthly payments, I have cut down on my official repayment time! The original terms were predicting I would be making my last payment in December 2025. The extra payments I made in as of March 2016 had cut that estimate by 3 months and put my final payment in September 2025. And that’s the servicer’s estimate, not accounting for any additional payments I might make. I’ll let you in on a little secret: we’re less than 6 months away from “tax season”, what do you think I’ll do with any refunds I may get?

Interest Rate: This one is easy and I can’t take any credit for it. By setting up automatic payments for the minimum amount due, they give you a discount of 0.25%, which will save me a bit more money over the life of the loan.

I hope your debt repayment plan is on track, and if you’ve fallen off the wagon, don’t worry. Better late than never. We’ve all stumbled.

Your Friend’s Reality

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This is a story about a girl* who travels with her husband, eats out, has parties, wears nice jewelry and gets her nails and hair done regularly. She is a college graduate, who works full time, owns 2 cars and has the 2.5 kids. Certainly, she’s living the American dream. She lives in a nice apartment. Who says the American Dream requires owning your own home? Well, as long as you don’t want to buy a home that is.

Would you think she is still living the dream if she was living in that apartment as a result of financial limitations? In that case, I’ll clarify things for you. That nice apartment is cramped. She doesn’t want to live there. But she can’t afford to move because the $30,000 in combined debt is too high relative to her income to qualify her for a mortgage. Did I mention can barely afford the apartment? Sure, she pays her rent regularly, but it’s financially taxing. I should also mention that she can’t afford to move. How do you downsize from a 2-bedroom apartment for a family of 4 and a pet?

If you find yourself envying the social media version of your friend’s life, stop. Until you see their net worth and their monthly cash flow, take what is presented with a grain of salt.

(*This person is not theoretical. She’s real. These issues she faces are things we discussed.)

Focus on what you have

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I don’t know if this its a symptom or a cause of a consumerist society, but in wealthy western countries, we spend a significant amount of time thinking about what we don’t have. We constantly compare ourselves to our peers to see if we’re meeting manufactured milestones that carry no weight in measuring our true success.

I was reading the comment section of an article yesterday when I stumbled into a young woman’s comment about how much of a loser she thinks she is. She said she felt worthless relative to her peers because of her perceived lack of success. Her primary reason cited for feeling like a loser is the fact that she still lived at home. At the ripe old age of, wait for it… 25. TWENTY-FIVE! That’s how old she is. And that’s why she feels like a loser. She went on to say that all her friends have nice apartments and she was the only one who lived with her parents.

Leaving the nest at a young age is a relatively recent American phenomenon. It is not uncommon for first generation immigrants to live at home until they are married. It also was not uncommon for it to be that way with American kids before going away for college became popular. In fact, if we go back even 100 years, I would say that multi-generational families were not uncommon either. So why is it that this thing that we started doing less than 50 years ago is now considered a deciding marker of success?

I’m not encouraging anyone to be 40 and still mooch off mom and dad. However, if you’re 3 years out of college, with no kids and no spouse, what’s wrong with going back home to get a temporary boost? 70% college student graduates with $29,000 in student loan debts and the average starting salary for new graduates is $45,000. I don’t think it makes anyone who wants to have food security and a roof over their head a “loser” when they’re in that financial situation. And we know what average means for the people in that group. It means that many new graduates have more debt and a lower starting salary than what’s listed here.

We spend so much time worrying about our perception of other people, at least the perception they want us to have, that we can’t see the forest for the trees. This young lady doesn’t know her friends’ financial situations. She sees the apartment she doesn’t have and assumes she’s a loser. Does she know how often her friend is left with $7 after paying rent? Does she know how much credit card debt that friend has? Does she know if that friend is able to save for retirement? When it comes to money, we see what they want us to see. We don’t see the reality. Often times, the reality is grim. Very grim. (More on that in a later post.)

Additionally, why isn’t she grateful that she even has parents who are able to give her a place to stay? Some people’s parents are so financially strapped that moving back home wouldn’t even be an option. She also didn’t complain about her relationships with her parents. Maybe that’s not what bothers her the most. Maybe she has a great relationship with them. We don’t know. But since she didn’t mention it, we’ll assume it’s fine. Why isn’t she grateful for that?

She didn’t say she was unemployed. What I gathered from her comment was that she was working but didn’t make enough; at least, not enough to move out. I empathize. But her fortunes are still greater than her problems.

She’s a college graduate (Bachelor’s Degree). That makes her more educated than 70% of the American population.

She has parents who can subsidize her.

She has a job.

She lives in the richest country in the world.

She’s not homeless and made no mention of food insecurity.

This is not intended to dismiss her problems. Rather, I am encouraging her and anyone who is in a similar situation to focus on their blessings rather than their misfortune. Your only focus on your problems should be how you’re going to solve them. Not how sad you are that you can’t live alone in an overpriced apartment filled with Ikea furniture.