Headline: I Went to a University, and I got Schooled

Date: 1/15/2021

Body: In another blog post, I extolled the potential virtues of a community college education as opposed to a 4-year institution.   Well, let’s say you decided to give that 4-year institution the “old college try” and went into debt to finish.   What do you do now?  I was reminded of this when I read a great article on the Penny Hoarder, How to Pay Off Student Loans Fast, No Matter What Your Income (thepennyhoarder.com)

Is it REALLY a big deal?

Did you know that less than 20% of students escape post-secondary education debt-free?  In fact, the totals of student loan debt in the U.S. is overwhelming; There is $1.46 Trillion in total student loan debt, and more than $166 Billion is delinquent.   Wow!!!  These numbers can be paralyzing, even without a perspective of how quickly it has piled up.  Since 2009, mortgage debt has roughly followed inflation, and added 3.2%.  Over the same 10-year period, student loan debt has risen 102%.  Even if one opts for a certificate program at a community college, the $10,000 average debt is substantial.

Why is Student Loan Debt so “special?”

One alternative, if you have a lot of debts to pay off is to declare bankruptcy.  (We have studied this briefly in a previous entry.)  But student loan debt is special because unlike a car loan or something similar, student loan debt is usually not dischargeable.  Said another way; In most circumstances you cannot get rid of this debt by going into Bankruptcy.    (Interesting side note, I did say “usually.”   If you satisfy 3 pretty onerous conditions, called the Brunner test, you MIGHT be able to get this debt discharged.)

OK, I Get It!!  Paying off this type of debt is important.  What do I do?

  1. First, be very honest with yourself and develop a list of student loans you have and the status of each.   Be sure to write down:
    1. Entity to which you owe
    1. Contact information for that entity (Names are gold, e-mail addresses, telephone numbers and snail mail addresses.)
    1. Balance owed to each
    1. Interest rate of each loan.
    1. Any unusual terms that are important
    1. Notate whether the loan is public or private.
I asked you to note if it was public or private debt for a very important purpose.    If you have public debt, often the interest rate is lower, and repayment plans are more possible.  So, these loans are much appreciated.    Not infrequently, these public loans have an income-driven repayment plan where your payments are linked to your income.  (Say 10% of your income.)  So, if you are unemployed, the loan repayment is deferred. But the other flavor is private loans, and they leave a bad taste in my mouth.   These loans are from private entities, and usually have higher interest fees, penalties for slow payment, and loan modification is VERY difficult.  They do sometimes offer an emergency 90-day forbearance period, but that is usually the only modification The reason that many people fall into this trap is 2-fold:  The ads for these loans are EVERYWHERE. People are not educated properly on how to productively search for public sources of funding.
  • Once you have your information together, contact each entity and do what you can to either cut down the interest rate or spread out the payments to be more sustainable.   Communication is key.
  • Consider Public Service Loan Forgivenessà If you work for government or NFP.   Word of warning, 99% of first applicants are rejected.   So, display persistence and appeal with every chance you have.
  • After you have your best terms, develop a repayment plan.   If we were Vulcan and used pure logic (we don’t) we would pay off the debt with the highest interest rate first.   Instead, I would recommend paying off the smallest debt first.   I recommend this because, when you have that first success, you get a big emotional boost, and it becomes more likely that you’ll be able to get out of debt.  (Behavioral Economics can be fascinating!!)  When making this plan, figure how much money you can devote to your student loan debt, and then cover the minimum payments on all of the debts that you have to.   With any remaining money, allocate all of that to the smallest debt.   Do this month after month until debt #1 has been satisfied.   Rinse and repeat.

But, I have no room in my budget to make these payments?

OK, this is going to risk being a little brusque; I apologize in advance.  There are only 2 ways to get more money to settle debts.  You can either cut your other expenses or increase your earnings.

Decrease Your Expenses–> This does not have to be as daunting as it sounds.  If you go to a coffee shop in the morning, go with the normal brew instead of splurging on a latte every morning.    Perhaps you have some subscriptions to publications or services that you don’t get value out of.  Once again, be very honest with yourself, and then cut aggressively.  (One year ago, I decided to go without TV, and I have saved a lot of money, and I am much less stressed.)  There are hundreds of other little ‘hacks” you can do to your everyday expenses that are not terribly painful.  Take your time, think through the expenses in your life, and be creative.  (Online, there are literally millions of articles on this kind of thing; Feel free to piggyback carefully on any one of the reputable sources.)

Increase Your Earnings–>  You could also do what you can to increase your earnings.   Perhaps there is a small additional project at work, that undertaken, would improve your chances of a raise.   Take the opportunity!!  Or, do what I am doing right now, and obtain employment in a “side gig” that you might very much enjoy.  There are a multitude of small employment “side gigs” to consider.   Once again, be creative and utilize your entire social network to find something perfect.

The Verdict

One student really encapsulates this problem for me.   There was a quote from her in one article, and she admits that she is one of the “lucky ones” and after 4 years of education only owes $14,000.   She is quoted as “It hurts my soul.”  Amidst all the speaking about finances, mental and spiritual health are also important attributes here.

So, when you get those acceptance letters, allow yourself a moment of exultation.   Celebrate!!!  You’ve earned it!!  Then put some ice water into your veins and examine each one, and consider the TOTAL costs.   Tuition and Room & Board are the big ones, but the small ones add up quickly.  The “small ones” can include books, fees, travel expenses and many other bills.  Going to a school with a formidable reputation can be wonderful, but make sure that the debt you incur is not forbidding when weighed against your increased opportunities.


Looking Over the Average Education Loan Debt Carried by College Graduates and Drop Outs (collegescholarships.org)

How to handle college loan debt as an unemployed recent grad – ABC News (go.com)

Misleading Info Causes College Loan Debt – Business Insider

Three Ways to Manage Student Debt While in Occupational Therapy School – AOTA

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

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