Graduating from law school and business school in the aftermath of the Great Recession and a particularly weak legal employment market meant that I had as much debt as a first-time home-owner and little to no steady income. As I looked for permanent work with little success, the first of my daunting, monthly debt payments loomed large in my mind. Not only was there no way for me to realistically make the mortgage-sized debt payments each month, but throwing in the towel was not an option. Federal student debt is one of the few debts that are not discharged in bankruptcy, except in some very rare circumstances.
I was not alone in this situation. There were and are thousands of students in the same boat. One solution introduced during the Obama Administration and aftermath of the 2008 Financial Crisis was Income Based Repayment (IBR). IBR pegs a graduate's monthly loan payments to his income (try the calculator here). So if you have a six-figure debt but are only making $30K/year, your monthly payments could be under $20. Once you establish yourself in your career, your payments increase and you end up paying it all off anyway. And if you haven't paid it all off after 20 or 25 years (depending on when you opted into the program), the balance is forgiven and you owe no more student debt.
The program sounds amazing, and for many recent graduates it is the only thing fending off financial ruin; there are two important downsides, however: increasing interest and U.S. tax policy.
Let’s start with increasing interest. My student loan debt carries an interest rate of 6.8%, much higher than most home mortgages and car loans. While being able to pay a fraction of my otherwise unmanageable monthly payment allows me to pay rent and buy groceries, it also means the size of my loan continues to grow at close to 6.7% interest per year, depending on how much I manage to pay off via my reduced payments. After years of paying a fraction of what monthly payments would be without the relief of the IBR, a graduate’s principal can grow to a staggering size. If that graduate’s income doesn’t eventually catch up to the size of the debt, there could be no end in sight to this growth.
The IBR’s solution to this problem creates the second problem: Depending on when you opted into the IBR, your remaining debt is entirely forgiven after 20 or 25 years. It doesn’t matter if you owe $5,000 or $500,000; the debt goes away. Sort of. Under U.S. tax law, debt forgiveness is considered a form of income. The rationale is that getting rid of an obligation to pay someone money is analogous to gaining money equal to that debt. So if you still owe $100,000 at the time your debt is forgiven, the IRS sees that as no different than you earning $100,000 on top of your other income. This means you have an immediate tax liability of roughly 30-40% of your income, depending on your tax bracket.
For many graduates, including myself, the IBR is an essential component of post-graduate financial life. I couldn’t afford to pay my true monthly payments without it. And yet it is important to understand the drawbacks of this program and not think it is a flawless cure to your student debt.
My husband and I worked diligently to pay down our debt, ensure our credit scores were favorable, and have a chunk of cash saved in the bank. At the time, we were renting and found that we were quickly outgrowing our small, two-bedroom house. We searched for a new house to rent and realized that the renters' market in our area greatly favored the renter rather than the tenant. Prices were outrageous.
After some budgeting and deliberation, we decided the best decision financially was to purchase a home. We made the three-mile drive to our credit union to inquire about a mortgage. They congratulated us on our superb financial planning at such a young age and proceeded to offer us a mortgage loan at the prime rate. The only stipulation we did not count on? They wanted a minimum of 20% down. We had saved only 10%.
The credit union gave us two options: save for a little longer or look into a FHA insured loan. With this type of loan, we only had to put down 3.5% on our home. The excitement returned, and we embarked on our hunt for the perfect house. Six months later, our home was secured, and we even had sellers pay our closing costs. We put 5% down, so we had extra money to contribute to furnishing our new place. Our dreams of homeownership had come true – but not without a cost we had not anticipated.
While the FHA loan was attractive with its low down-payment, we later found out that an extra fee for Private Mortgage Insurance (PMI) was tacked onto our monthly payment. The PMI fee was low so we did not really worry about it, but when we calculated it over the life of our mortgage, we realized we could have purchased a decent mid-sized sedan with that money. In hindsight, we realized that saving the extra 10% and going with the conventional loan might have been our better option.
Here's a general breakdown: Let's say your credit is good enough to get the prime FHA mortgage rate of 3.25% and you are looking to purchase a house at $150,000. Your down payment, excluding closing costs, is $7,500. Your borrowed amount is $142,500. Each lender makes the decision of what percentage rate to charge for PMI based on the buyer's credit score and loan amount. If your credit score is around 720, PMI will run about $85.50 per month on a fixed-rate, 30-year mortgage. Not so bad right? Well that $85.50 per month added to the life of the mortgage costs you $30,780. PMI can be cancelled once the loan to value ratio is below 78%, but even then you are still paying for PMI for at least 17 years – generally longer.
Still, the FHA loan has its benefits. The money saved by putting 20% down on home and avoiding PMI payments might not be a priority, and that is where FHA mortgages come into play. Borrowers with less than perfect credit can obtain a home with an FHA mortgage. Also, lenders who offer FHA mortgages will consider rolling the cost of any renovations into the life of the loan in case a borrower chooses a home that needs some work. Even the PMI insurance comes in handy, because having your loan insured by FHA makes some lenders lenient when approving a borrower.
The lesson here is to calculate what you're getting into. For some, an FHA loan can be a great opportunity. For us, it might have been wiser to save a little longer instead of jumping into a house. An FHA loan is there for a reason, but just because it's available, doesn't mean you should use it.
With a 45-minute commute, a fast-paced career, and a dislike for cleaning the kitchen daily, I've always been fascinated by the idea of freezer cooking.
Here's how it works: You prepare multiple meals at one time and freeze them. On days you'll be too busy to cook a real meal, you pull out the frozen concoction and toss it in the slow cooker. After an eight to 10 hour day when you would be tempted to order out, dinner's ready to be served.
On my first attempt, I made 12 freezer meals. It took about three hours to prepare the ingredients. However, it saved my sanity during a hectic time when I would work all day and then head to my first graduate-level class.
My favorite freezer recipes so far have been chicken and dumplings, smoky pulled pork, and chipotle beef tacos. But not every recipe will be a winner. You'll want to rely heavily on reviews and comments from other people. I once tried a rosemary honey chicken recipe that tasted like pine needles. The entire dish went in the trash, and I ordered a pizza instead.
Want to take a stab at this money- and time-saving trick? Here are six tips:
1. Buy ingredients during big sales. I bought all the items I needed for my freezer-cooking debut on a day when Meijer, the local grocery chain, ran a "5%-off-all-groceries" deal. I also try to use coupons and buy store-brand items to save even more dough.
2. Embrace family-sized packaging and bulk pricing. Typically, a young professional can't benefit from the savings of family-sized packaging and bulk pricing. But because you prepare so many recipes on the same day, you can save a few cents. During my last round of food prep, I bought two family-sized packages of chicken breasts, a very large container of chicken broth, and a big bag of onion.
3. Prep your own veggies. As much as I would prefer to buy pre-cut, pre-washed celery, it is cheaper to do it myself. But take shortcuts that you prefer – like using bagged baby carrots.
4. Freeze leftover ingredients. You won't use a freezer meal every night, but you can still save some of the prepped ingredients. For example, I love using chipotle peppers in adobo sauce. But a small can has more than I can use, and it feels wasteful to toss. I mince and freeze the peppers in tablespoon-sized portions. I also have tomato paste, chicken broth, and evaporated milk in my freezer. To save time, freeze ingredients in pre-measured amounts.
5. Be sure you have space. I have an extra freezer, which allows me to make 10 to 15 recipes at one time. Some people like to lay the freezer bags flat to freeze them, helping to save space. I prefer to place the bags side-by-side in an upright position because I know I won't want to clean the freezer if one of the bags leak. It's also easier because I can dump the frozen clump of ingredients right in the crock pot without having to defrost it.
6. Don't be afraid to improvise. I add extra vegetables in some of the recipes. Sometimes, I add extra broth or sauce because I end up leaving food in the slow cooker for eight to 10 hours. You also might want to add extra spices because some of the recipes you'll find online are a bit bland. Not sure what to add? Try adding spices right before serving.
When I ask most people if they have any regrets from college, they gaze off into the distance, smile, and shake their heads no. But for me, I look back and there is so much I would change. I made a lot of mistakes in college, and unfortunately most were money mistakes. Here are five of them that you can avoid.
Private loans – I didn't do any research. I didn't look into interest rates or calculate how much time it would take me to pay back these loans. I was out of scholarship and grant money and I needed a quick-fix solution to pay my tuition. Everybody had student loans right? How nasty could private loans really be? Turns out they can be pretty nasty. If you have to take out a loan, try to get a government subsidized one before taking the private loan route.
Credit cards – It's a great idea to have a backup credit card in case you get stuck in an emergency situation. But you need to be strict with your use of it. When I first got my credit card, I was good with it and then I lost control and let the material world get the best of me. I closed my accounts long ago but am still paying for the clothes and other unnecessary purchases I made 10 years ago.
Not commuting – I had the option to commute, but living near campus with my friends, frankly, was much more fun. It is possible to live at home and still have a great college experience – especially when you have friends on campus. Half our friends crashed with us multiple days of the week for free when they commuted. Rather than borrowing only what I needed for tuition and sucking it up at my parents for as long as possible, I took out loans for more than what I needed for my tuition so I could use it for books, rent, and living expenses. I'm still paying for that rent and food.
Not working – I did work in college – a few different reception jobs here and there –but I wasn't working all of the time. And I wasn't being wise with the money I was making. I used my class schedule as an excuse to work less and party more. What I should have done: work, work, work, and save, save, save. It would have saved me a lot of money.
Avoiding my debt – This is by far my biggest life mistake so far. I was young and naïve, and I had no idea how much money I was borrowing. I just took what I needed and thought I'd have it all figured out when college was over. But when college was over, I was lost and drowning in a sea of debt. Instead of taking charge, I avoided my debt until the loan companies started calling me and my parents. I was spending more than I was making, and that is something no one should ever do.
Five years later, I am embarrassed of my debt. I feel like I inherited it from someone I barely know, and now I am really paying for it today – not just literally. I easily could have avoided all of these mistakes if I would have taken the time to research and talk to someone like my parents or a counselor before just diving into the debt pool. Take it from someone who has walked in expensive shoes. Debt as a whole is difficult to avoid altogether, but if you can minimize what debt you take on, your future self would thank you.
Studies about the Millennial Generation bring up a number of generalizations. They expect praise. They're attached to their smart phones. They have college degrees, but they also have student loans, no meaningful job, and no major life purchases to speak of.
I'm 28 years old, and yes, I have an iPhone and parents who rewarded good grades with checks. But I'm also a college graduate with no student loans and a good job. I own a home and a car, I have a 401(k), and I'm getting married this year.
There's just one caveat to breaking the Millennial mold: I'm nearly $100,000 in debt.
36% of Millennials still live with their parents, according to an 2013 Zillow article.
"Millennials have seen their parents struggle firsthand," the article reported. "As a result, they're nervous they could find themselves in a similar position."
I see the attitude among my friends: Amy is a microbiologist. Jeff is an editor. Kristen has two degrees. They all live at home. They are weary of debt. They don't want to rent. They don't want to be tied to a house. They're scared of the commitment.
And there's something to be said for that because saving money is flexible. They go out to dinner and on weekend trips. They splurge without hesitation. If something breaks in the house, at least it's not their house to fix.
For twentysomething homeowners, every purchase is scrutinized, and saving is tough. Appliances die, utility costs spike, the todo list is long.
So is it worth it?
Every person's life presents different opportunities, regardless of the common economics or job markets. So my motto is simple: Plan ahead, and don't let good opportunities pass you by.
I have a $70,000 mortgage to pay off. But, by watching the market and working with a good realtor, I also bought my house at nearly half what it sold for a decade ago.
So now I have this house to pay for. Ouch. Could I use extra money in my paycheck? Absolutely. But by starting to save for retirement now and taking advantage of an employer match, I'll have a comfortable retirement.
Oh, and remember that mortgage? It will be paid off before I hit 60. My elderly years are going to be awesome.
You can live comfortably with debt if you know how to manage it.
- See a home for the investment - not the mortgage payment.
- Know exactly where your money goes, even if it's always to bills. For my fellow smartphoneloving Millennials, I recommend the money management app Mint.
- Save tax returns and bonus checks for rainy days.
- Hunt for deals and haggle for discounts.
- Practice the art of saying "no" to yourself and to others.
Repeat after me: Not all debt is bad debt. And besides, Mom's meatloaf isn't good enough to warrant waking up at age 30 in your childhood bedroom.
You're ready to launch into college, springboard into a career and vault into a happy, successful life. There's just one obstacle standing in your way: money. Yes, you've come to terms with the fact that you need a student loan. You may be a little anxious about it, or you may be downright petrified. But with a little planning and know-how, you don't have to fear the student loan. Here's what you can do to prep for your loan and take the anxiety out of the process.
Prepare your budget.
Your adult life will include many components (and costs). Take a sheet of paper and list them all out. What's the average starting salary for your career choice? What car will you be driving? Where do you plan to live? What about other expenses (groceries, shoe-shopping, utilities, etc.)? Average those in also. Now, consider your proposed starting salary minus your costs. Whatever is left over is the amount you can realistically afford to pay monthly for your student loan.
Figure out your interest rate (with a little help).
Terrifying and confusing, nothing quite intimidates like interest. Fortunately, there's a wealth of tools at your disposal, both online and in person, to demystify it. Here's where you can go for help in translating your interest rate into dollars and "sense":
- Financial aid websites: You'll find a host of sources online to help you unravel the mystery of your loan interest. Government-hosted websites, such as direct.ed.gov, offer reference material for a wide variety of student loans and the variance in interest rates you can expect for each.
- Loan interest calculators: Determining your payments for the duration of the loan is a must. At direct.ed.gov, you'll find online loan calculators to help you determine your payments for a wide variety of student loans and repayment plans. Simply plug in your loan amount, your interest rate and a few other relevant figures, and the calculator will determine what you can expect to pay throughout the life of your loan.
- Talk to a professional: There are plenty of flesh-and-blood resources to turn to for help with deciphering your student loan interest rate. Talk to your lender at length. He's there to answer questions and clarify your loan's fine print. Your school financial counselor is another excellent source of loan interest information.
Plan for the end.
You've plugged all the details into your loan calculator. You know how much you'll pay monthly and how many years it will take to pay off the loan. You need to plan for each year. Budget ahead for the expense of a new car and all the other growing pains of life. Student loans require a long-term plan, from beginning to end, in order to safeguard your financial future and avoid long-term debt.
A student loan doesn't have to lead to nasty surprises down the road or a lifetime of debt. Take the time to budget properly, explore your options and plan ahead, and your student loan will be a stress-free stepping stone toward a bright and successful future.
Graduating from college is exhilarating. You're entering the real world, about to make it on your own. But if you're like most grads, the weight of your student loans quickly sets in, and facing this reality can be rather intimidating.
The latest statistics from the Consumer Financial Protection Bureau show that the nation's student loan debt has hit $1 trillion. Sobering numbers like this are making many wonder if the cost of a higher education is really worth it. Although I hold what seems like an endless mound of my own student loan debt, I argue that it very much is.
Yes, it can be highly stressful staring that much debt in the face fresh out of college. 2013 college graduates faced an average of $35,200 in education-related debt, but what's even scarier than facing debt is facing unemployment. Statistics show that the unemployment rate for college graduates is 50 percent lower than it is for people without advanced degrees.
That's not to say that it's necessarily easy for recent grads to find work in their particular field. Experts advise that prospective students carefully examine their chosen field of study and research the job market. Studies that show which fields have the highest likelihood of landing you a job can help you choose your ideal major. For example, the Georgetown University Center on Education and Workforce completed a study showing that elementary school teachers face a much lower unemployment rate than those who graduated with a degree in architecture. Their study provides data on a variety of job fields and their associated unemployment rates and argues that not all college degrees are created equal.
And then there is the issue of salary. We complete these higher degrees in hopes of earning a higher income than we could have without them. According to a study by the Georgetown Public Policy Institute, people who hold a bachelor's degree do indeed earn 45 percent more than those with an associate's degree. And those with master's degrees earn an additional 37 percent more than bachelor's degree holders and hold higher quality jobs, as well.
Higher earnings immediately out of college are a plus, and when you consider how much more you earn over the course of your lifetime, it makes your degree even more valuable. In a report put out by the College Board, they show the need to examine the benefits over the longer term. Over the course of a 40-year career of full-time work, the median earnings of those holding a bachelor's degree are 65 percent higher than those of high-school graduates. Associate-degree holders make 27 percent more, according to the report. Despite the debt, degree holders are likely to come out way ahead in the end.
So while starting your career off in debt may not be the most appealing thought, launching a career that is likely to bring you higher profits for a lifetime sounds pretty good. Be wise about your choices of loans, programs and schools to keep your debt at a manageable level, and when your schooling is complete, make a strong plan for repayment. While student loans can be beneficial by helping you increase your earning potential, they are still debt. Pay them down quickly and begin truly enjoying the higher salary that an education can provide.
When deciding between renting or owning, one thing to consider is the amenities offered by your apartment complex. While they may seem like a nice bonus, they could actually save you hundreds and even thousands per year. Here's how:
Many apartment complexes offer a fitness center. This can range from a simple treadmill and a few weights all the way to including a yoga studio with a full professional quality gym. In my apartment search, I've found that this is one of the most common amenities. I've lived in an apartment community that offered a 24-hour access to the gym. Besides the cost on enrollment fees and gas actually driving to the gym, I was able to save on a pricey gym membership. My husband and I saved $30 a month in two gym memberships.
In some club houses, you'll find free coffee and water. Whether it is a standard coffee pot or a high-quality espresso machine with all the fixings, this could add up to huge savings. If my husband and I grabbed a coffee from this machine instead of heading to Starbuck's every day, those savings would add up. It would even save us the cost of buying filters, coffee to brew at home, and even a coffee pot.
A pool is a great form of both exercise and entertainment. You can save hundreds on a membership to a community pool or maintaining a pool yourself.
This not only provides free internet access, but depending on your computer use, it can save you that cost as well. The cost of upgrading your current computer, paying for anti-virus software, buying a printer, paper, and ink can all be saved with the use of a business center. The business center at my last apartment complex also offered a separate quiet conference --like area that was perfect for those of us who work from home or even those studying for an exam.
I can admit that I didn't think much of the fact that my apartment complex came with an opportunity to use the party room. However, when it came to hosting a holiday party, it saved a few hundred dollars on renting a hall or eating in a restaurant. If you have access to it without having to rent it, it may persuade you to rent a unit with less square footage and therefore costing you less since you can entertain in that room instead of your own unit.
Discounts at local businesses
Just by being a resident of my apartment community, I get discounts at local businesses. Restaurants, bars, retail stores, salons, a movie theatre, and even medical offices all offer a discount. I've gotten everything from 10 percent off a meal, and a few dollars off movie admissions, to buy-one-get-one eye wear. Of course the amount it will save you depends on how much you like to do these things.
Playground, access to trails, and other outdoor activities
A playground is a perfect, free way to entertain kids for hours whether they are yours or a guest's. Tennis courts, basketball courts, places to play volleyball, and so on are just a few of the outdoor recreation activities I've seen. Access to trails for running or hiking are a great way to have free entertainment as well.
Storing a bike in winter months could quickly add up. Having storage on-site is a money saver.
Some apartment communities are now offering a fully furnished apartment for you to use when you have a guest over. This could save you hundreds per month if you were contemplating getting an extra bedroom for when your family or friends come to visit for a night.
Access to a video library could eliminate the cost of a Netflix membership, the cost of renting movies, and could even persuade you to bump down your cable package or eliminate it all together.
I love how my apartment complex offers free events every month for residents. We've had everything from complimentary breakfasts, free wine and cheese tastings, appetizers at restaurants, and pool parties with catering. It's a great way to mingle with fellow residents and best of all--it's free entertainment and food.
When I was young, I often accompanied my father to work on air conditioning units. He specialized in all things HVAC (heating, ventilation, and air conditioning). Sometimes I found that the customers wouldn't pay him. Once I asked why, and he explained that they simply repaid him with goods or services of their own. Never once has anyone in my family paid for a car repair because of deals like this that he has in place. Growing up I enjoyed the spoils of bartering in ways you couldn't imagine. We got baked goods as we pleased, and I ate like a king. When I left home to face the outside world, I took these lessons of bartering with me.
Figure out what you got.
Before you begin, you should understand what skill you have to barter. One of the most marketable skills in a barter economy is mechanical skills. Think about whatever capabilities you have and make a list. Make sure people need it. The skills I usually try to barter include content writing for websites, article and essay editing, English language tutoring, Mandarin to English translation, and HVAC work that I do with my father (I'm not yet skilled enough to do it myself). Once you know what you have to offer, you can use these skills to pay for things when you need them.
Know your worth.
Place a dollar value on what you're bartering. Research the value of a good or service you plan to exchange. It's important to take into account your experience and knowledge. I do translation for an auto parts company where my friend works. Once I needed new tires for my car. When the factory sent me a new document from China to translate, I calculated the value of my work and deemed it to be roughly the value of three new tires. When I asked for a full set of four tires instead of a check, the manager agreed. It probably saved us both money.
Understand that what you can barter is endless.
Cash may still run the economy, but anything can be bartered. And it's coming back in a big way because it can be mutually beneficial at times when people and businesses are financially strapped. I know two friends that live together. One works at an airline and the other at a finance company. The one that works at an airline uses buddy passes to pay for part of his rent. It's a win-win for both. My father recently fixed the heating unit in a restaurant. The boss paid him in gift certificates to the restaurant that roughly tripled the dollar amount he should have received. Even things that don't cost much can be bartered. Be creative and think outside the box. Who knows? Maybe you'll be trading dog grooms for oil changes. The possibilities are endless.
Friends, neighbors, classmates, family, and strangers are all possible partners. I personally like to keep my exchanges to friends and family but have used online marketplaces to trade various goods and services. One of my favorite swaps to do online is language exchange. That's one of the ways I learned Chinese and is currently how I am learning Vietnamese. Think about what you need and where you can find it. If you can find it within your local social network, go with that. If you can't, the wild and large world of the internet awaits. Dive in!
A word about online bartering.
Currently, several legitimate bartering places exist online. Obviously Craigslist is one of these, but one I really like is U-Exchange, a site where you can exchange services with other local people. BarterQuest.com and Swap.com are two I enjoy using if I need a particular good and want to pay with something I don't need anymore. Recently, I was able to get Microsoft Office Software in exchange for an old marketing textbook on Barter Quest. A good way to know you have a solid deal on these sites is to look at pictures of the products being offered and talk with the person offering them first. See what other people on the site are saying about that member and spend some time looking at that person's profile. Also, ask questions to verify that a particular person can actually offer the goods or services being promoted. If possible, sign a bartering contract as well.