Student Debt Progress
For an excellent orientation to the larger student loan issue, please enjoy the following educational documentary. The first 5 minutes is most valuable. John soon goes into a rant about the scam of for-profit colleges that stole money from students. Not a good thing, but not our situation and a distraction from the issue of unmanageable debt that 75% of students suffer.
The journey to financial freedom starts with grappling with the reality of the situation. My family's dedication to higher education has come at great cost, both financial and emotional. Others have written brilliantly about the Student Debt Crisis so I won't belabor the situation. No opportunity comes without cost, and education is no exception. Some industries have lucrative potential, and even after considering the cost of school it can be a good investment. For my wife however, we found Veterinary Medicine to not be the financial opportunity some may think it is. She is gifted as a DVM; she was born for this and I would not have it any other way. However, the reality is that if you want to be a Veterinarian, all likelihood is that your greatest return will be gratitude from your patients.
If you don't believe me, ask
Michael Dicks: head of the American Veterinarian Medical Association Economics Division.
How it happened
In August of 2009, we started a graduate program out of state. We were told that after a year or two of living there and becoming residents we would be given the in-state tuition rate of half the out-of-state tuition we were currently borrowing. Higher education is very competitive, and when acceptance comes, one is greatly encouraged to take that opportunity regardless of the cost. With the promise of federal loans to help make our dream of a career come true, we started school with enthusiasm one would expect having won a new car. Over the course of four years, including two summer sessions, one semester at a time we borrowed money for school and a small stipend for living expenses of $1,000 per month. These loans are not subsidized, so from day one they started earninging what I would later understand to be daily compounded rates of either %6.9 or %7.9. In our second year, we were informed that because we moved for the purpose of school, we would not be considered residents as previously "promised", and we were saddled with the double price as out-of-state students. Half way through is not the time to jump ship and try to start again at another program, so we pressed on accumulating an incredible debt. After 4 years of extremely hard work, Tara completed her doctorate degree having borrowed $220,000. Two months after graduation and the bills started coming, we learned that our debt had grown another $130,000 just in the time we were in school. So in June of 2013, we started an impossible journey to pay back our student loans, now $350,000, as fast as we could.
Set up for failure
I laughed when I learned that the annual cap of tax credit for student interest was $2,000, knowing we were paying $2,300 a month in interest alone. This daily compounded loan became the daily cross we will carry until its eventual completion. Our friends and many strangers tried to convince us that paying it off would be a waste of resource, a waste of energy, and frankly not possible. We applied for Income Based Repayments, which dropped our payments from $4,200/month to $960. The terms: Never miss a payment, Reapply every year with new tax returns, Never be late; and in 25 years the remaining balance will be "forgiven". Well, the stakes were too high for us to stay in the IBR boat. If we missed a payment or were late to reapply for IBR, the interest that is accruing will be amortized to the loan, and we lose the IBR status. If loan is near impossible to pay off now, imagine when that amount goes way up. The Kicker: the amount that is "forgiven", will be counted and will be assessed as taxable income. Some quick math and we deduced that in 25 years, when we are 55 years old, we'll owe taxes on:
$350,000 (Starting balance)
x7.4% (daily compounded rate (avg of loans)
x 25 years
- $900(per month payment)
....... The loan will grow to over $900,000 dollars after having payed $285,000 over 25 years. Taxes on 900,000 in one year with no actual money to show for it... We were looking at owing the government approximately 300,000 of extra taxes on the eve of our retirement. This rock and hard place reality put us in a tailspin of no easy-out options. We dug deep into who we were as people, and decided that we would rather struggle now then struggle later.
The Plan
Most just laugh when we report our debt. I've offered to sell myself to employers for 4-6 year contracts at 20% of industry salary. I've offered peer investors a 4% return on a personal loan, and I've searched high and low for refinance options to drop the interest rate. Those that would consider it will only give us about 1-3% improvement in rate with vastly more strict terms. Though the government is a scam, the 12 month deferment option is a necessary safety net given how life can be unpredictable. So our decision is to pay it off ourselves.
Today our Student Debt makes up 60% of our household budget, requiring enormous commitments to work just to maintain payments. From August of 2013 to February 2016 we dropped our principle down to $280,000 and have payed almost $70,000 dollars in interest. We learned to not simply send a payment but to apply the money to the loans that had the highest interest. I have decided to share our progress more openly because many people have asked us about having children and when to get our married life into a more conventional schedule. Thankfully Tara's income is able to support our entire lifestyle, which we keep under 3,200/month for house/cars/utility/undergrad loan payments/ food, ect... My work is highly variable, so I work as much as I can and put 95% of my earnings toward graduate school debt. In 2014 I worked 2 jobs, averaging 50hrs a week. In 2015, I averaged 90-120hrs a week. In 2016 i worked 2 jobs averaging 50hrs a week. in 2017 I worked 3 jobs averaging 60 hrs a week. The effort has put us way ahead on our pay off schedule, but came very costly to our emotional health and relationships. The only result anyone can see is bags under our eyes and a seemingly impossible story with no easy answer. We are on a time crunch. As we delay becoming parents, we risk the chance of having fertility issues. This is our journey to stability, to a place where we don't have to work 6 days a week just to keep up with payments; a place where a child in the home would not be considered an unreasonable expense; a place where who we are as people and friends and neighbors can be what drives us instead of hemorrhaging time to this alter of "Student Debt: The Broken Promises". I do not want money, I want time.
The Spreadsheet
This is a record of information taken from my paychecks, and record of payments made as they are made. I am doing this to keep myself honest, and also to keep me on track. In my house, Debt is seen as a responsibility. Like heart disease or lung disease, if you don't deal with it, it will eventually make it impossible to do what you want. In my work, I've never seen a person desperately short of breath with a smile on their face saying, "Well, the meth was so worth it." or "The life experience of being a smoker makes all this completely worth it." I believe it is childish to think that "later" will make anything better. If I can look at this situation, and own it, then when I'm in my 40's, I won't have to look at it ever again.
Update: September 2017
We were blessed to find an anonymous investor to offer us a great interest rate. This change will save us over $80,000 over the life of the loan. Words can not describe the feeling of being supported. As a borrower, having done the hard work and taken commitment with my responsibilities for years was the only reason this Angel decided to help. We have no collateral, do not own more then $20,000 of our house, and are financially the most unsecured loan possible. But this person made a personal investment into our family.
Why Help
Have you ever considered being a practical and all-in help to someone? I have tried to do it in my own life, and I feel better when I do something when I can instead of standing by and hoping nature will just work itself out. As a recipient of such generosity, I can tell you that when you do decide to help someone you will be transforming their current situation as well as the trajectory for their entire life. We will hopefully be debt free now in about 5 years, instead of just paying off the student debt in 8. What that means for my family is just like a doctor walking in and saying "it's benign". The grim, dismal, finality of our situation is now over! This devastating burden is now manageable. Not only do we no longer feel alone in this; we also have hope. If you have an opportunity to give someone hope, then why not? Find someone.. never mind that. You already have someone you know who just needs a little hope. A working washingmachine, a simple house project, lunch for crying out loud! If you are reading this, then it's for a reason. Do not miss an opportunity to Be Kind, Be Honest, Be What's Needed.
Make sure you let me know if you choose to help someone. Kindness and generosity are not tag-lines or aspirational messages. These are mandates on how we create a community that thrives. These are the few things in life that multiply when given away, so start investing.