Articles with student loan debt

WTF Student Loans

I was reading this article that hit close to home regarding student debt, and it was discussing the fact that senior citizens are making up a portion of the overall American student loan debt. It described a story of a lady that took out student loans twenty years ago, TWENTY, and due to the economy going south, laid off, a divorce, etc… she had put it into deferral, or couldn’t pay it and it was now almost $100k. That’s serious coin at any age, but trying to become retired and pay off a $100k debt, how the hell does that happen?

This got me to thinking, “If the student loan debt for senior citizens is $18 billion, yes BILLION, and it represents just a small percent of the overall student loan debt, how much money do Americans carry in student loan debt?” A quick Google search revealed that the overall student loan debt load is $1.2 TRILLION! What the hell?! The average is $26,000 in student loans, however, they then note that 1 in 10 have over $40,000 in student debt.  That is a lot of debt!

It reminded me of my situation, since I was the 1 in 10 with over $40,000 in debt. I know many people who got through school with no loans, or minimal loans, as they used them to cover tuition and books only and not their living expenses. And most of those folks were diligent and mindful and quickly paid back the student loans.  This makes me wonder if the current high loan average is reflective of actual cost to go to school or the poor financial mindset of most Americans? Thinking about my friends, the ones who had minimal loans have always been debt averse, and very prudent with their finances. But those people who had huge student loans, like me have tended to be more debt heavy, and make bad financial decisions.

For instance, Kate (totally made up name, but real friend) would go through a cycle of enrolling in classes, being super pumped about them, taking out loans to cover the cost, then 75% of the way through the semester, just stop attending classes, turning in assignments, and ultimately having to jump through loads of hoops just to get a failing grade at the end of the semester. Loan debt is acquired, and no payoff is seen from it. I had many an argument with Kate regarding this as I was full-time school and work and didn’t get what she was doing every semester. I mean seriously… wtf? This cycle happened so often, she wasn’t allowed to get loans anymore. Needless to say, she has accrued even larger loans now due to interest racking up from non-payments while the loans are in deferral or penalties associated with late payments.  Another person that comes to mind was a former co-worker who had almost $65,000 in student loan debt, let’s call him John. John’s original loan amount was closer to $24,000. How did it get that high you ask? Well, I met John when he was in his 40’s and he had been carrying that debt around for almost 20 years, like the woman featured in the article. He would make payments, but then be too broke to afford it, so they would go into deferral due to economic situation, or something similar, but he never attacked the principal, and now is in his 50’s with a lot of debt. He also made poor financial choices though, like purchasing a brand new $60,000 SUV with loan payments of ~$700/month for the next 7 years, and that was with a vehicle to trade in. He didn’t seem to mind and enjoyed the new car because it “could fit all of the kids in it comfortably.”

My point is that maybe the fact it is SO easy to get student loans isn’t the issue, and maybe even the outrageous cost of college nowadays isn’t the issue, but rather the mindset of the people taking out the loans. People with a  poor understanding of what it is they are actually doing to themselves, like Mr. SSC, just take, take, take and don’t worry about interest rates or loan amounts, because “it will get worked out and paid off eventually.” I wasn’t very debt averse and had no problem carrying around debt, because I didn’t truly understand what it meant. Hell, I’m still not very debt averse, I just have seen how negative it is and how bad it can mess up your planning for any retirement, much less early retirement. A friend of mine, Alex, was asking about student loans back in the day, and I said, “it’s easy, just go fill out the paperwork and “Ta-da!!” Free money.” I literally said free money… Oh, Mr. SSC, what a poor grasp of finances you had back then. Alex looked into it and said, “Dude, I can’t get a loan rate below 6%, what did you get?” Mr. SSC, “I don’t know, I didn’t pay attention.” Alex, “That’s like a car loan, why not just get a private loan from the bank then and haggle for a better rate?” Mr. SSC, “Sure if you want to go through the hassle, but we’ll be getting good paying jobs in less than a year, so why not just get this loan and pay it back then? You should be able to pay it off in a year or less after you start.” Alex, “Nah, I don’t need the extra money that badly.” Another example of how a good vs. bad financial mindset can save you money in the long run.

If only I had that mindset back when I was racking up the student loan debt, I could have saved myself a lot of money, stress, and gained more time towards early retirement. For your amusement or maybe it will turn your stomach, I’ve also found this link to a student loan debt clock from Financial Aid.org. It’s truly amazing…. In a very, very bad way.

 

Bad Decisions Part 1: It’s raining student loans!

SSC student loans

When I was in college and  grad school, I took out much more in student loans than I needed, to try to live above my means, and I have only recently started to understand the financial ramifications and lament the decisions that the younger Mr. SSC made. Let’s start at the best place to understand these decisions: The Beginning!

The problem started a long time ago when I was working on my Bachelor’s degree.  At first, I was undeclared and attending college simply because that is what I was supposed to do.  Initially, I was attending Western Kentucky University (WKU) on a Pell Grant while also working long hours at a restaurant to foot the other bills. I got the shaft when my mom married a judge and they claimed me on income tax and it derailed my Pell Grant status. After a couple of semesters paying for school myself, I took some time off to figure out what I wanted to do, and if it even involved college. My time-off resulted in a long hiking trip, and the decision to go back to school to pursue an environmental science degree. I declared my major, registered for classes, and was introduced to the wonderful world of student loans and it was amazing! They’ll “give” you money to go to school! This was brilliant! I could get a student loan, pay for school, and have some cash left over for living expenses. After all, it was ‘deferred’ – not that I really understood at the time what that truly meant. This was like getting the free money of an income tax refund two more times a year. Awesome!

Obviously, I started taking out student loans. Fortunately, the school was in-state tuition, so not very expensive. Nonetheless, I still managed to rack up about $12k in loans over my 1.5 yrs there. In August 1999, I went to Colorado to visit family and fell in love with the area.  By January 2000, I was enrolled at the University of Colorado at Denver and studying full time in the geology program.

Upon transferring to CU Denver, I did myself several disservices. First, at WKU I had completed all my required elective courses, and only needed 3 semesters to complete my new major. However, CU Denver classified things differently and I needed another 30 hrs of electives (ten more classes), almost 2 whole years because I could only manage 12 hrs a semester while working. Even worse I had to take math! Two frigging yrs of math! Gah! A whole semester of trigonometry only, and a yr of algebra, and a yr of calculus and I’m sure there was a semester of regular geometry, shit, that’s 3 yrs of math, see how bad at it I am? That just added more time and $$. Second, I was now an out-of-state student subject to out-of-state tuition. This was three times the in-state tuition price. “This was fine”, I told myself, “it will only be for 2 semesters, so it won’t be that bad”. Subsequently, my school loans jumped from about $5k/semester to ~$16k/semester* for tuition alone with almost no left over funds for subsidizing living.

My plan was to live in Denver, work and go to school downtown, and be able to play in the mountains in my free time- now that’s the life! Except I now had to study a lot just to pass stupid math classes and work full time and be broke, so I didn’t get to the mountains much except to hike some 14’ers on the occasional weekend day I may have had off. Sigh….   I was maxing out loans and still working full-time at a good restaurant job, so I had that income, but no savings or contingency in case of an accident. I felt this was fine though. I was investing in me, and my future, and with this degree, surely I’d get a good job to cover these loans.

However, with my poor finance skills, I wasn’t keeping an accurate tally of how much I’d actually borrowed. Take that back, every year I got a statement that said “you owe $XX amount in student loans”, but, I’d glance at it and throw it in the trash. What I wasn’t considering was the payback. Yeah, they eventually want their money back! Gah!!! Meanwhile, I kept borrowing and taking as much as they’d give me, and it was like a breath of fresh air each semester when I’d get that check for $3-5k extra. I was so excited that I could catch up on bills, and restock my savings which was empty again (damn thing was always empty, how does that happen?).  I even had a little extra money to be able to go out with friends.**

Eventually, I was out of school and had a good job as a geotechnical engineer. Yeah, I’m not an engineer, but I played one at work. It was a decent gig, I loved the job and it paid about $45,000. I was starting to live the dream baby! Then I started getting bills, a LOT of bills for my student loans. Kentucky wanted money for the WKU loan, Colorado wanted money for the CU Denver loan,  and Sallie May wasn’t my friend anymore, but more like an angry ex-wife. My monthly bills were close to $500. I freaked out after covering them for 3 months when my savings died and I was still paying. I got a great rate and consolidated them all at ~2.25% interest. Hell yeah! That’s some personal financing! I cut my bill in half almost, and now just had one bill to pay, and I set it up to a separate bank account so when I overdrew my main account (yes this happened more often than not) it would still get paid. Good job Mr. SSC, let’s go out and celebrate!

I ended up going back to grad school, and got those loans in deferment as quickly as possible, whew! There’s an extra $300 a month! Now, for more student loans… Yep, I still took out student loans even though grad school tuition was paid for. I was even getting a stipend of ~$20k/yr just to go to school. But I had tasted the good life at $45k and couldn’t go back! Actually, I’m just a sucker for bad financial decisions, and I racked up another $12-15k maybe in grad school loans. See, I still don’t know… Ultimately, I was in for over $60,000 when it was all said and done.

I could have helped us get to FI and leave work to stay at home almost 2 full yeas sooner if I’d been more financially sober in my decision-making. I don’t regret the decisions I made, hell it’s what makes you the person you are – good decisions, bad decisions, ugly decisions. The main point is that by being so financially reckless in my younger days, I prolonged my work life by at least a few years.

I hope that you may be able to learn from my poor decision-making and realize that yes, you can save enough and retire early. Like early 40’s early, even with a late start in life. Hell, I made the worst of the worst decisions, and I cashed out a 401k at 28, it was up to $12000! Still, I’ve been able to recover in spite of myself. For me, it took changing my mindset of living as if there’s no tomorrow and instead looking toward a future with no work and more family time. You may want to have that time with family too, or just fishing, gardening, or doing whatever you want, but until you break that mindset of “I’ll pay it back later” it’s just not going to happen.

Let me know if you’ve made any stupid decisions you realize cost you a few more years getting to FI or early retirement. Check back for more installments of the series Bad Decisions, there have been a lot… Next up — Bad Decisions: Easy credit, hard payments.

 

 

*I tried to appeal the third semester of out-of-state tuition to have it switched to in-state, but I lost the appeal and paid the full 3 semesters out-of-state tuition, because administration loves technicalities in their favor.

** Working at a restaurant had its advantages. I got $2 pints at work (off clock, of course) and a free meal each shift (so, ~6 days a week). BUT, my friends were all servers and got $100 – $300 a night. They were always saying “let’s leave the cheap drinks here and go anywhere else to get more expensive drinks, or out to dinner, sushi anyone?”.  I was running with the wrong but fun crowd, and I didn’t want to be different. So I would go and just charge it to a credit card if I didn’t have the funds available (which was always).