Student Loans….a topic that almost everyone can relate to and almost every person in the personal finance community curse. We’ve all read the reports and the numbers are staggering: total student loans are over $1 trillion dollars here in the US and the average graduate is leaving school with an average of $37,712 (Source: Student Loan Hero). My goal today is to discuss my family’s student loan situation, some of the tough discussions we had before incurring the student loans, and then to cap it off, my plan to pay off our debt as early as possible.
My Family’s Student Loans Situation – How we got here
I don’t know if you all have noticed this, but we haven’t covered student loans too much on this website. That’s because Lanny and I, for two completely different reasons, we able to pay off our student loan debt quickly out of college. Heck, I believe both of us processed our final payment before we started this website over two and a half years ago. My strategy was to pay off the high interest rate debt and free up the monthly cash flow to invest as much of the proceeds as possible. I have to think that freeing up the capital was a major contributor to getting my portfolio in the position it is today (with over $3,250 in dividend income). I was very fortunate, no doubt about that, as I left college with less than one-third the debt the average student is now graduating with. So paying off my student loans early was an easy feat as I started my career in public accounting. This wasn’t one of those “Pay off an insurmountable about of debt in 12 months story.” Rather, it was a “I’m sick and tired of incurring high interest rates on debt so let’s end this as soon as possible” stories.
If I paid off my student loans over three years ago, then why am I writing this article? If you all recall, about 6 months ago (Wow – almost six months ago to this day), my wife and I got married and started a new chapter in our life. At the time of our wedding, she was enrolled in a graduate school program to become a nurse practitioner. For all of those who are wondering, yes, I still do feel bad that she was still working, in grad school, and I proposed…adding planning a wedding to that list. Like most people, we had to take out student loans to fund her studies. Her student loans are through the government and since she is enrolled in a graduate program, she is paying a premium interest rate on her student loans (approximately 6%). Not an ideal situation at all; hence why I am here writing this article here today.
Before I dive into the amount of student loans outstanding and the payoff plan, there is one more piece of the story I wanted to tell because I think it is an important piece of the equation that is often overlooked. Sorry everyone, I am stepping up on my soapbox here…please hang in there with me. I wanted to highlight the conversations we had before she decided to enroll in school and how important this decision was to determine when enrolling in graduate school will be worth it in the long run. Too often, with degrees such as MBAs or other graduate school programs, I do not think the following conversation is taken seriously. As a result, as I have seen with too many friends over the years, they leave their graduate program thinking things like “This wasn’t worth the money” or “How the heck am I going to payback my student loans? It will take forever.” Therefore, when my wife and I entertained the idea of her going back to school, we ran the idea through a vetting process and made sure that all the boxes were checked before researching the right program.
- Is this something she passionately cares about? Yes.
- Would you quality of life improve as a nurse practitioner be greater than life as a registered nurse? HECK YES (Don’t believe me, just talk to an RN).
- Will this increase your earnings power significantly to justify the expensive student loans? Yes. If things are according to plan, the amount earned from an increased salary should surpass the cost of tuition in less than two years.
It didn’t take too long to sell me on the idea. After she decided to proceed with enrolling in the online program, we created an excel file to weigh the costs of the program with the program’s rankings. We passed on the low-cost provider because of terrible online reviews, saying the school was not helpful with job placement and professors were difficult to get in contact with. I am all for spending more to pay for quality in the right situations. We are frugal…not cheap. You are spending a lot of money on this education regardless of which college you select, so it was a no brainer to pass on the low-cost provider and incur more debt to ensure you are receiving a quality education and it increased the chances of receiving a better job post college. After much debating, weighing of pros and cons, we had finally settled on the school. The program was six consecutive semesters for ~$35,000 in tuition. She would begin in January 2015 and end in December 2016 (Yep – just a couple of weeks away).
Our “Six Semester, six quarter” Student Loans payoff plan
Tuition was $35,000, still below the average graduate’s student loans balance upon graduation. So again, we are in a pretty fortunate place here. To make the news even better, my wife’s employer offered tuition reimbursement totaling approximately $7,000 over the two years. Further, we have begun the process of paying down the debt over the last few months. I hate having debt in general and love paying it off as soon as possible, so I can only imagine how I am going to feel when we find the house of our dreams and the mortgage that will come along with it. When all is said and done and my wife receives her diploma in a few weeks, her final student loan total will be $23,000 + interest. Yes, I make sure all my payments round the debt down to an even number.
I’m calling our plan the “Six Semester, Six Quarter” payoff plan because I want to try to pay this loan off as fast as possible considering the high interest rate. Since my wife’s program was six semesters long, I am aiming to have our student loans debt paid off in six quarters, or by June 30, 2018. This would result in paying off $3,833 in principal quarterly to achieve this goal. Further, I am earmarking all future funds that I earn from Swagbucks and other side hustles towards this quest. If I want it bad enough, we are going to make it happen. Will it be tough? Sure. Will it impact my ability to invest? No, it shouldn’t considering my wife’s increased earnings power.
Also, come January, I am going to explore student loan re-financing options to see if I should lower the interest rate on the loans so that more money will be applied to principal with each payment. Based on some quick research, we could potentially reduce our fixed interest rate from 6% to 3.5%-4% depending on the institution we select. Since my plan is to have this paid off in a very short period of time, here is the formula I will use to determine if re-financing is a good idea: If Fees (Origination and Potential early payoff fees) + New Interest < Current Interest Rate, then we will refinance. If not, well, then looks like the government will be our lender until June 20, 2018.
summary
Operation “Blitz Student Loans” is officially underway. One thing that is sometimes lost in the shuffle is that all debt is not created equal. There is good debt and there is bad debt. While it sucked taking out debt, we considered this good student loans debt. In this inst It checked all of my wife’s life/career boxes, will make her happier, and increase her earning power over the years. Further, the fact we had the tough discussions up front and made sure we found the best option for her schooling allowed us to avoid incurring too much debt and washing away some of the benefits of this move. I look forward to the challenge of paying off the student loans debt in less than two years and hopefully bring new meaning to our “Every Dollar Counts” philosophy.
What are your experiences with student loans and the payoff process? Do you have any advice or suggestions for side hustles along the way?
-Bert