Whiddling Down ...

I just made another payment on my student loan. The balance is currently around $24k. I think around $20k of the remaining $24k funded my ungraduate education. Wow. Eight years to pay off my graduate education. How sad.

My goal is to pay off the remaining balance by June 2010. I don't know how I'll celebrate when I mail in my final payment (or receive my "paid if full" letter). Any suggestions?

Marty Nemko's Career Advice Website

There is a great career advice website hosted by Marty Nemko: http://www.martynemko.com/. He addresses a variety of topics related to making a living. He even has a group of writings discussing overcoming one of my biggest problems - procrastination! Unlike most advisers, he doesn't automatically assume that a college education is the best for everyone.

His website and blog hit such a nerve with me, that I relayed my pathetic story to him via e-mail. He responded and was very kind.

I highly recommend giving Dr. Nemko's site a read!

Out #1: Earn More Money to Make the Student Loan Payment

Earning more money is probably the most obvious option for someone who needs to make their student loan payments. But this is also the most difficult out to address. Most people would already be making more money if they were capable.

Everyone immediately jumps to the conclusion they should go back to school for a degree in order to make more money. This also has the added benefit of deferring any student loans you have. Unfortunately, you will plunge into more debt, and you may be in the same boat when you graduate. Earning your degree is a gamble as there is no guarantee that you will be able to get a job or the salary you expect.

If you do proceed with college, go for an inexpensive certificate or two year degree. Many community colleges offer courses for less than $100 per credit. Blue collar jobs often pay as much as those requiring a Bachelors or Masters! Usually hands on, technical skills have the highest ROI (Return On Investment).

You can also learn on your own. Do not underrate this. It demonstrates that you are motivated, a self-starter and responsible.

If you have a skill that is currently in demand, you can teach a class. Check for teaching opportunities at local colleges, high schools (continuing education), and even some retail stores (such as Michaels if you are talented in the arts).

Starting a business is also an option, but usually requires a large investment of time and money. Research the possible drawbacks before proceeding.

Out #2: Spend Less So That You Will Have More Money to Make Your Loan Payment

Spending less money so that you have more to pay down your student loans is a no-brainer. However, how can you spend less whenever you think there is nothing you can spend less on or you can eliminate altogether?

The best tool for spending less is to create a spending plan. But you can't create a spending plan unless you know what you are currently spending your money on! The best thing to do is track your spending for a month or two. Every penny gets recorded! At the end of the month, gather up your financial records for the previous year (bank statements, canceled checks, etc.). With this information in hand, you are now able to create a spending plan. Time to start trimming!

There are many great reference books on how to create effective spending plans. I highly recommend Making the Most of Your Money by Jane Bryant Quinn. If your local library doesn't have it, you can request them to get it for you via interlibrary loan.

Ms. Quinn also lists some great ways to lower your expenditures. And there are many ways of doing this.

Shelter - I remember that in grad school every month I spent one of my bi-weekly paychecks on rent! If you are renting, try moving to a cheaper apartment or finding a roommate to share expenses. If you own your home, rent out a room to bring in some extra cash. You can eliminate a monthly housing payment altogether if you can mooch off a financially stable relative or friend for awhile.

Food - Each month half of my other bi-weekly paycheck that didn't go towards rent was spent on food! Coupons are a must for the thrifty food shopper. Shopping at more than one store is prudent. Watch the ads. Items go on sale in cycles, and you will learn to forecast when certain products will go on sale. Most of the time the same items will not be on sale at the same time at all stores. Buy in bulk. If the food will go bad before you use it, start a group of money-conscience shoppers such as yourself and buy together. Split the groceries among the group.

Clothing - Buy used from yard sales and thrift shops. If you want upscale clothing, goto thrift shops in wealthier neighborhoods. Depending on what you are making, you can save money by sewing garments yourself. But most of the time this is true only with clothes made from expensive fabrics (which you probably don't want to spend the money on, anyway). Alter and repair old clothes instead of buying new. If you don't know how to sew, take it to a seamstress and get a quote. Take boots and shoes into cobblers for repairs (such as worn sole).

If you belong to a church or house of worship, oftentimes they have programs to assist with basic necessities such as rent, utilities, food and clothing.

When buying anything online, google "coupons" and the store you will be buying from. Very often you will find a coupon that will offer you extra savings.

If you are thinking about going to college, research if the college you are interested in offers tuition breaks or waivers to employees. If it does, seek employment there. Most colleges (that I know of) offer tuition discounts or full-tuition waivers for staff and faculty (and sometimes includes spouses and children of staff and faculty too). Staff includes AAs (secretaries), janitors, grounds keepers, etc., so you don't necessarily need an education or training to work at a college! You can also look into whether your current employer offers tuition assistance.

Added Countdown to Freedom!

I just added a new feature to my blog ... my countdown to F-R-E-E-D-O-M! I know that it isn't the greatest countdown ticker in world, but I designed it myself - quickly! I knew I wanted it to look something like the ball dropping for the new year in Times Square. The payment of my student loans will be bring financial freedom and a new beginning for me. And I thought the disco ball would bring some glitz :-)

I am hoping to have the $28k balance paid in full by the middle of 2010 and preferably in May, June or July - the 11th anniversary of my last semester as a full-time student. It was the last time I took out student loans. It would take another 3 years (13 years after I left school!) instead of little over a year if I just pay the minimum! I will update the countdown monthly to reflect my repayment status.

Wish me luck!

Out #3: Request a Forbearance or Deferment

I actually don't know many people with student loans who have NOT at one time or another requested a forbearance or deferment of their student loan payments. With both you will either not have to make any payments for a short period of time, or you will have to make reduced payments. Let's take a closer look.

Deferment: Student loan payments are suspended for a certain period of time due to a myriad of circumstances (unemployment, returning to school or economic hardship are most common). Interest will be paid by the government on subsidized loans during this period, but not on unsubsidized loans. If you don't pay the interest on unsubsidized loans during this time, it will be tacked onto the principal and it will compound.

Forbearance: Forbearance may be granted in cases where you do NOT qualify for deferment. Student loan payments are suspended or decreased for a certain period of time due to a myriad of circumstances. You will pay interest on both subsidized AND unsubsidized loans. If you don't pay the interest on either loan during this period, it will be tacked onto the principal and it will compound.

What does compounding mean? Essentially you will pay INTEREST ON TOP OF INTEREST. I will discuss this further in a future post. And while compounding interest is great for investors in order to build wealth, it is a nightmare for borrowers. Ever hear the old adage "money makes money?" Compound interest is one of the many reasons why.

Most pay dearly for this "out", and you can't delay paying your loans forever. If you have a $50,000 loan at 6% interest, you are paying $250/mo in interest. A 6 month deferment/forbearance results in $1,500 in interest alone! If it is not paid, the principal becomes $51,500! In addition there are limits to how long the government will pay the interest on your subsidized loan in the case of deferment.

Here is some further information for those having difficulty repaying their loans:
http://studentaid.ed.gov/PORTALSWebApp/students/english/difficulty.jsp

Pros:
- You will not go into default on your student loan
- Your student loan payment will be suspended or decreased temporarily allowing you time to get on your feet financially
- Deferment is essentially free for subsidized student loan holders
- The principal on your loan will not increase as long as you pay any accrued interest that you are responsible for

Cons:
- The principal on your loan will not decrease during times of deferment or forbearance
- The principal on your loan will actually INCREASE during periods of deferment (unsubsidized loan borrowers) and forbearance (unsubsidized and subsidized loan holders) IF ACCRUED INTEREST IS NOT PAID

Out #4: Return to School in Order to Have Previous Loans Deferred

Ah, yes. Returning to college in order to have current student loan payment deferred is an old stand-by. One leading to even more debt while hoping that the further education will be you ticket to a high paying job in order to pay it.

I have employed this method to dodge paying my loans for awhile. I couldn't find a job after undergrad (please refer to My Story), and I didn't know what to do. I admit that this is the easy way out ... well, for a brief period of time anyway. And in a few years my student loans were back with a vengeance - bigger, badder and even more difficult to pay off!

I went back to graduate school even though I preferred to get another BS degree in a different Engineering discipline such as Electrical Engineering. It probably would have only taken a year or so to complete, but the rules about borrowing additional funds under the student loan program required that I attend graduate school if I already had a bachelors degree. BTW graduate school is more expensive than undergrad and more is expected from you. I still borrowed the maximum I was allowed at the time (around $8k per year, I believe) even though I had a Teaching Assistantship through the university!

Since I didn't have all the required undergraduate classes for an Electrical Engineering Masters degree, I had to take undergraduate classes my first year but still pay the graduate rate. What a racket!

I ended up in the same boat I was in before graduate school, but this time a LOT more in debt.

If you return to school, do your best not to borrow additional funds! In the future I will suggest ways of doing this. Of course, the methods I will discuss are not suitable for everyone. If you go back to school and must borrow money, do your best to minimize the amount.

Pros
- Your student loans will be deferred while you are attending college full-time
- The degree you receive MAY help you to obtain a higher paying job
- You will hopefully be more educated which is something that nobody can take away from you (although you may end up wishing that it could be repossessed to pay off accumulated student loan debt)
- Interest on subsidized student loans will be paid while you are in school

Cons
- You may not be able to borrow to enroll in a bachelors degree program if you already have a bachelors
- The degree you receive MAY NOT help you to obtain a higher paying job or the pay may not be as lucrative as you thought
- The job market may change while you are in school and jobs in your chosen field of study may temporarily or permanently dry up
- If you borrow money, it will be additional debt to what you started with (and hence a higher monthly payment when you leave school)
- For whatever reason you may need to drop out of school, and would have spent time and money towards a degree that you don't have and can't use to obtain a job
- Unsubsidized student loans will continue to accrue interest and will be tacked onto the principal of your loan if you do not pay the interest while in school