Recent Student Loan Developments in the News

Recently there have been some developments regarding student loans in the news dealing with both the current and future interest rates. The current rates for subsidized student loans are 3.4% and unsubsidized loans are locked in at 6.8%, with many private loans coming in at rates even higher than this. Right now the 3.4% interest rate loans are set to double as of July 1, though there are bills on the table to prevent this rise from occuring

Then there is other end of the spectrum - Senator Elizabeth Warren is actually campaigning to get the rates on student loans lowered.

As you can see from the above image, she wants students to be able to get loans for the "same rate as the banks". I personally find this a bit ridiculous, as the 0.75% rate is the overnight lending rate to the banks. These loans are not being held for 4+ years and it would be impossible to even break even at these rates. Trust me, I am no fan of the banks but I just don't see this strategy being feasible or sustainable. Whoever is loaning you money needs to either profit (private), or be able to break even (government or non-profit).

I'm not 100% sure about all these rate changes, because I'm not sure how much subsidized loans actually come back to the taxpayers but I do agree that student loans should be able to pay a competitive rate. You can get a mortgage around 3% in the current environment and car loans and other loans can also give much better rates when compared to the current student loan market, especially on the private side of things.

I know there is a lack of collateral behind student loans when comparing it to mortgage or a car loan, but there is also the fact that student loans are very rarely discharged in bankruptcy - they are with you for life! A better campaign would be to try and keep the subsidized loans at a rate of 3.4% in the current environment, and focus on getting the rest of the student loan rates below 5%. I think this would be a fairly reasonable solution and would help out a lot of students. Of course, we all know what happens when reasonable and Congress are brought up in the same sentence. We end up with two extreme stances and have to hope they somehow to end up on that reasonable solution.

I still personally believe the biggest thing that needs to be done about student loans is education as I had said in a previous post. General education on personal finance, taxes, and credit in general would be great too! This topic in general is of great interest to me, because the interest rate on my student loans is what really makes me want to get rid of them. The fact that I'm losing so much extra money each month on top of the money I borrowed is what really is driving me to pay them off as soon as possible.

What is your opinion on the current state of the student loan interest rates? Do you think lowering them is the correct solution? 

Further reading on this topic: 
LA Times - Elizabeth Warren Proposal
NY Times - Preventing Student Loan Rate Increase

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Posted in Debt, Student Loans

Student Loan Education

I personally believe the biggest thing that needs to be done about student loans is education about what exact these student loans mean for your life after college. I personally had no idea the extent the amount of debt I was piling up while at school or how exactly it would affect me after graduation. I definitely didn't have much knowledge on personal finance, investing, or anything of the sort - and I'm still a novice at this.

My parents did teach me the importance of saving money, not wasting money, looking for deals, and never abusing credit. For this I thank them; I have never built up a credit card debt and always pay the full amount each month.

But when it came to student loans, this was brand new to all of us. My parents had never went to college, and my high school guidance counselor never even hinted there was another option. I had great grades and student loans were just part of the process of going to college in my mind.

Most 17-18 year old seniors in high school have no idea the concept of a huge sum of money. The extent of their personal finance probably comes from car payments, car insurance, gas money, and money to hang out with friends. They most likely do not have a mortgage and hopefully don't have a huge credit card debt to their name. The concept and size of $25,000+ student loan debt is foreign to them.

A few things that I think can prevent situations like my own, or even worse case scenarios is full education on student loans:

•  Guidance Counselors in High School and parents should be able to tell students that college isn't the end all solution. It IS possible to learn a trade, get job experience, and still be just as successful within certain professions.
• Community college is a great option, especially if you are unsure of what you want to do. A majority of people switch majors, so you can save here by making the change at a lower cost.
• Many state schools have great reputations and can be a lot cheaper per year compared to private schools
• Before accepting any loan students should be given a screen showing how much they are taking out for that year and then the following calculations would also be mandatory for the lender to show before the borrower accepts: 

1. We'll go with an example of $5,000 a year. First of all, the student should be shown how much this $5,000 debt will actually be if it is unsubsidized loan. If that loan is taken out freshman year, it will be closer to $6,500-$7,500 by the time the student graduates. The borrower should be made aware of this amount!
2. The borrower should be given an estimation of their 4 year cost of going to school based on this first loan. So if they are taking out $5,000 for the first year, it should show them that they will most likely end up with $25,000-$30,000 total in debt after graduation. I believe that seeing the total amount gives a much better perspective than the individual amounts being taken out each year
3. The borrower should then be given an estimation of how much their minimum monthly payments would be based on that calculated total debt. I think it should also show them an estimate of how much is going to principal each payment, and how much would be going to interest.
4. The last thing would be that they are able to select various degrees and the area of the country they are in and be given salary estimates. Based on these salary estimates, the net income for each month should be shown and then the student loan payments should be subtracted from that total. The borrower would then be able to see how much money they would have leftover each month after those minimum payments. 

I believe that if this transparency was shown before every student took out a loan, you would see a lot of people rethinking their choices. That $50,000 graduating salary doesn't look as good when you have to give half your take home pay to paying that loan off! Just being able to see the huge amount and the effect it will have on you in front of your face would be a huge deal.

Do you think that education and transparency about student loans would help reduce the amount of debt that students are graduating with?

Photo Credits for this post: Pixabay

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Posted in Debt, Student Loans

Unbury Me!

Now I don't know if you are like me - but if you read my first post you'd know that I hated the thought of student loans. I didn't want to look at them, I didn't want to acknowledge them, I just wanted them to go away and pretend they weren't there. Now that I have finally acknowledged them I want to establish a target of actually getting rid of them (not just by hoping they magically dissapear - though if this somehow did happen you wouldn't hear me complaining).
 
While living at home is not the optimal solution that I was looking forward to after college, it helps me keep my spending way down and allows to me to put that money towards my loans instead of paying a full rent every month. In this post I'm going to tell you exactly how I plan on paying off these loans, and hopefully establish some sort of timeline!

I have come up with a few scenarios to pay off my loans using the awesome yet simple website called unbury.me. It's super easy to use as well as modifying once you have already put in all your information - and it's free. I'm going to be using the avalanche method to pay off my loans, and while the psychological aspect of using the snowball can have its advantages, I think for myself I'll gain the biggest psychological advantages by paying the least amount of interest possible.

The first scenario I'm going to talk about will be the conservative method of paying off my loans, with trying to aim for $1500 payments a month: I will have fully paid off my loans in about 5 years, but have paid about $17,000 in interest still. That really sucks - but the 5 years part doesn't sound TOO terrible.

The second scenario for paying off my loans would be aiming for $2000 payments a month: This brings me to a debt free solution over a year ahead of the $1500 payments! I also end up "only" losing near $12,000 in interest - a savings of $5,000 which would be great.

Just for fun, I've also done a scenario where I somehow manage to make payments of around $2500 a month just to see how much of a difference that would make:
My loans would be fully paid off in just 3 years, and I would end up paying less than $10,000 in interest. Wouldn't that be awesome? I don't see this scenario ever playing out realistically though, as great as it would be. With my fixed expenses it would live be with basically zero spending money each month and with the constantly rising cost of gas that wouldn't help either.

I think what I'm going to end up targeting is somewhere in between the $1500-$2000 payments a month and hope to have my loans completely paid off sometime in late 2017/early 2018. Hey, maybe I will even have months where I can strive to get my payments over $2000. I know next month when I use some of my overly large emergency fund to completely eliminate one of the loans I will definitely be over that amount. I hope you too will follow me along in my journey to become debt free and maybe even make progress on your own if you are in a similar situation!

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Posted in Debt

The Beginnings of a Journey

Where to start? That's a question I've been asking myself pretty often and one that I will be trying to tackle throughout the course of this blog. I have a huge amount of student debt, one that makes me cringe and nervous to look at as I make the payments for these loans.

My eventual goal is to become financially independent as soon as possible, hopefully sometime much sooner than the current retirement age. I really do not have a set goal in mind at current, and I'm not even sure how exactly I'm going to get there. Once again, I'm hoping that in doing this blog will help me to establish some definite goals and allow me to really see that debt I've been (unwisely) hiding from this whole time.

For this blog post, I'm going to be laying out all my student debt and totaling it all to show you (and myself) where I currently stand - something that I've very rarely done. Here goes nothing...

Loan	Loan Amount	Interest Rate
Private 1	$ 27,220.04	7.92%
Private 2	$ 20,097.38	7.92%
Private 3	$ 3,067.54	7.92%
Private 4	$ 3,588.77	7.35%
Gov 1	$ 22,041.66	5.22%
Gov 2	$ 7,704.42	6.80%
Total	$ 83,719.81

....Ouch. I think that's going to be all for my first post, I will go over more details about myself and where I'm at in other aspects in my next post.

Photo Credits for this post: Public Domain Pictures

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Posted in About Me, Debt