You might want a glorious beard, but those pesky student loans have you so depressed that not a single hair will grow. I get it. There is a debt crisis about to blow up in this country, and it is chiefly because of student loans. More and more students are graduating and finding extreme difficulty getting a job in the field they studied. Now, they have to start paying back monster student loans that paid for a degree that, in most cases, wasn’t even necessary for the job they did manage to get.
I personally now have slightly less than $50,000 in outstanding student loan debt. Dude! I’m getting closer and closer to 40, and I still owe a pile of money the the U.S. Department of Education. What’s worse is I’ve only managed to pay off about $10,000 over the past ten years. That’s pretty depressing. I have been making the absolute bare minimum payments since I finished my many degrees, and the balance comes down VERY slowly. Today, I’m going to tell you about how I got that debt (short version: very stupidly) and what I plan to do about it. Through the power of beard magic, we’re going to slay that dragon in under 2 years.
Should you pay off your student loan?
I’m a big fan of The Empowered Dollar, where Stephanie Halligan uses comics to enlighten the 20-something set about good fiscal management. She shares her story about how she paid off over $34k in student loans in less than four years. Even though she doesn’t have a beard, she’s still pretty awesome. She talks about the five strategies she used, and I’ll just briefly list them here. You should read the whole article to get the details.
- Side hustles
I have a similar plan. Actually, this is the basic plan everyone should use to achieve any sort of financial goal, whether it be paying off loans, building a stock portfolio, or saving for your kid’s college.
But first, let’s ask the fundamental question: should you pay off your loans any faster than you have to? This isn’t a simple question with a simple answer. A few years ago, CNN had a story by Mohammad Majd titled “Want to get rich? Don’t pay off your student loans.” The basic idea is that by paying the minimum and investing the rest, you almost always come out ahead, because student loan debt is typically financed at a rate lower than market returns.
The bloggers at Mint.com share a more nuanced tale on loan repayment. They point out some of the risks you take on by keeping the student loan around.
Lisa is also taking other kinds of risk by keeping her student loans around. She might lose her job and be unable to pay her loans, which would then go into default, rack up scads of penalties, and demolish her credit score. Some of her loans might have a variable interest rate that could go up.
Lisa should also put some value on how good it feels—emotionally and physically—to get out of debt. A growing body of evidence suggests that debt is bad for your health—not just severe debt, but manageable day-to-day debt, too.
One more risk to add: you can’t bankrupt student loans. Ever. They will always get their money in the end, so long as you ever receive any sort of money from anyone. If you run into some serious trouble, you can walk away from that mortgage and bail on that credit card debt. But the student loan collector will still come calling, and they will never stop.
I know some people with interest rates on their loans above 6%, which seems to be more common with more recent graduates. In an economic environment where the Federal Reserve is basically paying banks to take their money, this is damn near criminal. If that’s your situation, then it makes way more sense to pay that beast down fast. Paying down your loan is a guaranteed 6% return on your investment. You can never get that kind of guaranteed return on any kind of investment.
For me personally, I have a fixed 4.5% rate on my loans. I’ve looked into refinancing through SoFi and other places (more on that below), but the rate I have is pretty much the best I can get, even with some stellar credit. So what should I do? Pay it off fast, or invest. From the title, I bet you can guess which I have chosen.
How to get $60,000 in student loan debt without ever spending a penny on tuition.
Let me tell you a little story, first. I graduated with a B.S. degree in a hard science with less than $8,000 in student loan debt due to some scholarships and some help from my family. Pretty awesome, huh? I went to graduate school and got an M.S. in the same discipline. So you know, in the hard sciences and engineering, graduate school is almost always free. I was actually getting paid to get my M.S. degree by working as a teaching assistant for the department. I taught some of the department’s labs, and my tuition was covered plus I was paid about $15,000 per year as a stipend. I then went and got a PhD (after a few years in the workforce), and I got paid to do that, too, without paying a single cent in tuition.
So how the hell did I end up with over $60,000 in loans when I was finished?
You see, I’m “smart.” I’m “savvy.” I realized that student loans have a really low interest rate. I was eligible for some big-ass bucks from Aunt Sallie Mae even though I had no tuition to pay and my ramen noodle and roomates lifestyle didn’t require more than the $15k I was being paid. What if I got the biggest loan I could and then invested the money? Those loans are interest free until I graduate, and I’ll beat the rate in the market pocketing the spread as pure profit. How smart!
Yeah. I spent that shit.
Hey, a car loan runs at a higher rate than these loans, so it’s “smart” to buy that car I don’t need with these loans I shouldn’t have. Beer ain’t free. I’ll take my girlfriend on a trip to NYC to show her how ballin’ I am. That worked out great. She dumped me on the trip.
Basically, I did exactly what any early 20s dumbass would do when given more money than he needed to live. I blew it. At least I didn’t blow through $100,000, like Jacob Wade from iheartbudgets.com. Just $60,000. Though, I still have to pay mine back. So Jacob, maybe I win in the dumbass contest.
I wasn’t completely stupid with the dollars I was getting from the government. I did put a small down payment on a tiny $65,000 house that I bought in graduate school. (Aside: they were giving money to anyone back then. I was a friggin’ graduate student earning $15k a year, and I bought a house with 3% down.) I sold it a year later for $10k more than I paid, bought another house that I sold for $70k more three years later, then lost almost all of it on the next house that I bought at the peak of the real estate market in 2007, right before it all came tumbling down. That’s a whole different blog post, though. I also work in my field in a job I couldn’t have without the degree my student loans didn’t actually pay for.
The worst part of this story is that I couldn’t even grow an awesome beard back then. Just a thin little goatee. Sad.
How we plan to pay off $50,345 in student loans in under 2 years
As I alluded to above, I plan to chop the student loan out of my life. It’s not a beard, so we can shave it! My plan is similar to Stephanie’s above.
Side Hustle: I have a pretty good base salary, but since we’re trying to retire in 10 years, I can’t “sacrifice” our Mustachian savings from that pot for paying down the student loan. So it’s side hustle time. Right now, I’m making some damn fine money working as a consultant and content author for a company in my field of expertise. I have been averaging between $2,000 and $4,000 per month, depending on my volume. I also get paid extra for working in the summers (don’t ever let a teacher tell you they’re poorly paid without asking about what they do during the summer). And finally, I have my little side hustle right now where I’m traveling Europe on someone else dime while collecting $4,400 per month on top of my base salary.
Negotiate: I’ve been producing some impressive work for my employer, and I have the opportunity to get my salary up a bit. I’m working on that, and we’ll see how that pans out in the future.
Allocate: Once the CCs and car loans are paid, this side hustle bank is going towards the big student loan full time. We’re only 1 month away from having those first two items checked off the list. That means we’re two months away from watching serious chunks get shaved from that beast.
Prioritize: High interest debt first. That means CCs and car loans. THEN, the student loan. We’ve made it a priority, though only slightly lower than our retirement plan.
Motivate: Make your goals public. Working on this blog is part of our motivation strategy. I’m friggin’ Dr. Beard. If my beard isn’t fantabulous and my cash stash isn’t thick and luscious, then I’m just a big loser and I’m letting everyone on the internet know it. (I think we’re up to FOUR people that have read this blog as of this writing!)
I would love to tell you the monthly allotment we have planned, but our current student loan plan involves big chunks at somewhat random times. I will keep the blog updated when we make a big dent, though. The basic gist is that we’ve made a 10 year retirement plan based on my base salary. Earnings above that get thrown at the student loan.
You may also want to look into refinancing your student loans. Interest rates are LOW, and they will probably remain low for a while.
I looked into refinancing my loans with SoFi. They have a fantastic interface and give you a loan rate quote nearly instantly. The rate I was offered was about the same as what I currently pay, so I personally didn’t end up refinancing with them.
However, if they offer you a lower rate than you currently have for your student loans, then you might want to investigate.
Here’s a little bonus. If you use my link and end up refinancing your student loans, then you’ll get a $100 bonus. That’s $100 that goes towards paying your student loans. Not a bad deal. (I’ll also get a $100 bonus for referring you, so we both win.)
Your beard can be beastly, and your student loan can be destroyed. It takes some work and hustle and a commitment, but anyone can do it. It may take you longer, or you might be able to knock it out in a year, but everyone can get the beast slayed if they put their beard to it.
How do you plan to pay off your student loan?