Hey everyone! Today I have a guest post to mark off the second week in my debt payoff series. I asked readers and friends to submit guest posts regarding anything relating to their debt. Enjoy! If you would like to participate, please e-mail me at senseofcents@gmail.com. Today’s post is about a reader’s student loans. Read further if you would like to read about my wonderful $38,000 student loan plan.
Almost eleven years ago I graduated with my Bachelor’s degree in Business Management and $15K in debt.
I was lucky to only have this much in loans as my parents for some and I had paid cash for two years myself by working summers in high school.
My husband had an additional $12K that he owed and when we married two years later we combined it.
Over the course of 6 years we made it a priority to pay these off. Every year when we got our tax money back we paid down on these loans. We started with the biggest one first (mine) and then used the money we saved on not having to pay mine and doubled down on paying his.
Graduate School
I then went to grad school and had to take out another $5K in loans. For most of grad school I took one class at a time and we paid for those cash (about $900 each.) That was the most helpful as we could stay on top of it and not have to borrow too much (though it took me 5 years to graduate!).
One year I had to take a lot of classes (I was pregnant and trying to get ahead) and we took out loans to cover it. Again, we used tax money to pay it back and within 10 years we had successfully paid off approx. $32K in student loans.
Some facts about how we deal with money in our house:
– We don’t have any credit cards. Everything we do is paid with debit and if we can’t pay for it we don’t do it.
– Since having our two children our tax returns are ridiculous (over 10K!) We use that money to pay off debts (both cars, wood floors, college accounts for children, vacation funds, etc.) Before the fun stuff is paid for we pay of the boring things, like college loans. It is not exciting to do this, but it feels really good to eliminate debt.
– We automatically pull money into savings and our retirement accounts. It is important to us to have a buffer in savings for emergencies.
– We live off of one income (my husband’s) while I stay at home. I worked until our children were born and used that paycheck to add into our savings.
– The only debt we have is our house, which we bought as investment property and will rent out for income when we move in June (we are a military family!)
A little about me! I have a personal style/lifestyle blog called Because of Jackie. I’m a mama of two young ‘uns, and I love to shop (cheaply!), read, write, watch QVC (I’m addicted!) and share my stories of everyday life. Curious? You can read more here.
Do you have student loans? What are you doing to eliminate them?
Related Posts
I Thought I Was Too Good For Community College- Should you get an MBA if you want to start your own business?
- Consolidating And Refinancing Student Loans – What You Should Know
- How I Paid Off $38,000 In Student Loan Debt In 7 Months
- What I Would Change About My College Experience
- How To Save Money On Textbooks + Campus Book Rentals Review
DC@Young Adult Money says
We are chipping away at a mountain of student debt right now, but one thing I find important is this -> "- We automatically pull money into savings and our retirement accounts. It is important to us to have a buffer in savings for emergencies." We have auto deductions to retirement but haven't started the auto deductions to our savings account yet. We'll start that soon. Even when paying down debt I think it's important to set aside money for emergencies.
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Michelle says
I agree! This is something that we need to start doing. Pay ourselves first!
My recent post How We Handled $32,000 in Student Loans
Holly@ClubThrifty says
I read this whole thing thinking that Michelle wrote it…..it didn't make sense! Haha!
Anyway, great post! That amount of student loan debt has to be overwhelming but you obviously did a great job dealing with it.
Michelle says
Haha sorry Holly. I just added a little blurb in the beginning so now it makes more sense 🙂
My recent post How We Handled $32,000 in Student Loans
Brian says
I have a student loan (around 10K now) and I'm just paying a little above my min payments. I am in no rush to pay it off since my interest rate is really low and I am earning more by investing. If the market were to change I would either pay more on it or pay the entire thing off.
Question: If you are gettting $10K back from the federal government as a refund, why don't you adjust your withholdings? That's an additional $800/month cash in your pocket you could use to invest/save, which, even in today's low interest rate environment, is better than a 0% loan to the government.
Michelle says
I'm jealous of your low interest rate! Most of mine are at 6.8%, so I don't really want to keep them.
And hopefully she can answer your question 🙂
My recent post How We Handled $32,000 in Student Loans
Meagan says
Yes! I agree. We have been talking about that and and will do it this year…it is just nice to have lump sums that can pay off things all at once for a bit:)
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JNieto says
I have to agree with Brian. I myself enjoy and try to shoot for a modest return, but if you are getting a $10,000 refund then you are giving the government way to much in terms of an interest free loan. Think of it this way, that money that is being over-withheld could be used to pay any debt you now owe. In effect, you are giving the government a free loan which is being financed by your own debt!
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studentdebtsurvivor says
Thankfully my loans are paid in full. My interest rate was also 6.8% which was sort of crazy considering interest rates for mortgages are so low right now. That was an additional motivator for me in paying mine off so quickly.
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Michelle says
My interest rate for most of my loans is 6.8% also. Congrats on paying yours off!
My recent post How We Handled $32,000 in Student Loans
Stephanie says
Hey Michelle and Jackie, I have a question. I'm about the same in law school student loans right now, $32,000. I pay just above the minimum on both (two separate loans) each month. About $250 total. The interest rates are low, I know one is only 3% and the other is around 6 or 7. I'm in that ridiculous 39% tax bracket (ew) and I think my loans are one of the few tax shelters I have right now. Do I just keep paying the minimum for years or do I start going bigger? What would you do? Is it better to just make them go away as fast as possible?
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Michelle says
Hmmm I think this is a tough question to answer. It's really up to how comfortable you feel with loans. If it were me, I would get rid of the loans with higher interest rates and probably just slowly do the 3% loan since it had a low interest rate so I wouldn't let it bother me as much. If you can afford to make extra payments to your loans, then why not? 🙂
My recent post How We Handled $32,000 in Student Loans
HappyFund says
Hey Michelle, sorry to intrude, but I feel the need to share my thoughts on this since a lot of people seem to struggle with this question.
There is an emotional and mathematical answer.
Emotional answer: you don't like debt? Pay it off. Being in the 39% tax bracket, $32k in student loans should be peanuts for you (see a blog called No More Harvard Debt). If you don't mind the debt, see the mathematical answer.
Mathematical answer: whether your loan interest rate is 6%, 500%, or 0.9%, you should pay it off if you cannot earn more than that with the money you would have paid it off with.
Hope that helps!
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Michelle says
No, I definitely wanted people to help with this question. Thanks so much! I want all opinions. Anyone else?
My recent post How We Handled $32,000 in Student Loans
Meagan says
I agree! Pay off the higher interest loan first, then the next if you want. I know that I liked having them all paid off at once and not having any debt (beside's a house), but I see your point about the tax shelter.
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Lance@MoneyLife&More says
Keep in mind that you're paying interest. A tax deduction only gives you 39% (or your marginal tax rate) of tax reduction for each dollar in interest expense. If you have 0 interest expense you get to keep 100% of the value dollar instead of just 61%. That said, a fixed interest rate 3% loan is awesome and inflation could surpass 3% in the near future. The 6-7% loan is harder to justify as that is pushing it. I'd probably pay off the higher ones and keep the lower ones. Also, student loan interest deduction is capped at $2500 a year I believe.
Now if there was a tax credit for interest deduction it'd be a different story. A tax credit saves you a dollar of taxes paid for each dollar of credit, not just a dollar off of taxable income.
HappyFund says
Great job on paying off the student loans. Question: can your husband adjust federal tax withholding from his military pay (not sure if military pay has its own rules)? I ask because 10k in income tax returns is really just a 10k no-interest loan to the government. That is just over $800/month extra in your husband's paycheck that could go straight to paying debts right away.
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Meagan says
Yes, that is an option we have thought of. I think we liked the idea of having money in a lump sum that couldn't be used for other monthly expenses…kind of a goof proof way (for us) to only use it for good (paying debts.)
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CrazyTragicAlmostMagic says
As someone IN school this plan seems idealistic and un obtainable for most people (me). I have $35k in student loan debt and do not currently make the money necessary to stay on top of the interest while in school. God help me if I don't find a better job to provide me with income to make the minimum payments, let alone, large payments. I wish someone would post about what to do in THIS type of situation. Not the ideal "I make enough money to tackle my loans" group.
Not complaining or arguing the validity of the post, just saying that not all of us with loans are in a position to attack them so aggressively.
Michelle says
I have asked for guest posters to help me out, but so far I haven't had any takers. Hopefully someone sees this comment and wants to help!
I hope you do find a better job that can help you with your student loan debt. Are you doing any internships or anything else to help you network so that you can get a foot in the door at a possible company?
My recent post How We Handled $32,000 in Student Loans
Meagan says
I hear you! I was in school for many years and only paid the minimum then, as well as deferring them for two years while I was unemployed while my husband was deployed. I did not begin to pay them until several years after college and used tax money little by little each year to pay them off (choosing higher interest ones first.) I guess I just recommend paying what you can, and then when (if) you have larger tax payouts or other lump sums, putting it into paying the loans down a little at a time. I also chipped away at mine and did not begin to pay off with taxes until 2008 (seven years after graduating.)
My recent post the (not so) little change that made all the difference
Jim says
Michelle, you are instilling good financial values in your children with your lack of credit card usage, something more parents should be aware of! Kudos to you guys! Nice to have found your site!
@deaconhayes says
We paid off our student loans a little while back and we used the debt snowball strategy to get rid of them. It was a huge relief when we know longer had to make that payment!
Marissa says
I hate my student loans. Paying them off makes me feel so better.
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kimateyesonthedollar says
Another great debt payoff story. I've never put my student loans at the top of the list for debt payoffs, but they are certainly there now and next on the list to go down. Congrats on paying your off.
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1294silverwood says
I don't understand why you spend so much money and time to go to school and then just become a stay at home mom?
Michelle says
I wouldn't say that she "just" chose to become a stay at home mom. Being a mother is hard work and even though I am not one, I do know that. Also, some people go to school to learn new things, not only to apply it to a future job. That's why a lot of older people go to school (not saying she's older or anything though).
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Meagan says
Good question! I'll take it as a need to know more info kind of question and not an insult?…I worked five years after college and went to grad school to become a teacher (long story as to why!) I knew once I had kids I wanted to dedicate their before school years to staying home with them. It was important to me to be there for them until they both went to Kindergarten. We had them close in age (17 months) and I will go back to work in 2 years ( a total of 7 at home.) I WILL use my Master's Degree in Reading Education to become a reading specialist then. I will be back at work at age 35, that gives me 30 years to work and use my degree and have the chance to stay at home…win/win right? I don't think an education is ever "wasted"…I pride myself in the knowledge that I am an educated stay at home mom who applies her knowledge every day running my blog and raising my children.
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Ivy says
Why not adjust your withholding on your taxes so you have that money during the year? If you are consistently getting back a large sum because you overpaid during the tax year, then you could make adjustments, have the money during the year instead of a lump sum later on, and pay things down during the year, saving on the interest if using the money for payment and earning the interest if you are tucking it away into savings. It's like you are giving the government an interest-free loan each year instead of making the sum work for you. It might be worth the investment to talk to a CPA about some tax planning.
Meagan says
Yes! I agree and we are changing it this year. I think we liked the idea of having a larger sum at one time (that couldn't be spent!) and paying of things at once.
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Nick @ ayoungpro.com says
It sounds like you are doing a great job! I am trying to decide if I am going to go to grad school. I want to go, but I definitely don't want to go into debt to do it.
Meagan says
Doesn't it feel amazing to pay things off and not have them hanging over your head?!
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iheartbudgets says
Must feel great to have those loans gone. We had a total of about $40k in loans at one point, now down to $14k left. I cannot WAIT for the day that those disappear completely!
I echo what others have said, I'd adjust your withholding to maybe only get $1,000 back or so. You can then invest or save toward your goals with that money throughout the year instead of loaning it to the government.
If you find that you have a tough time keep that money, hit me up! I can help put together a budget plan for it if you want 🙂
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K-ro says
For the last few years, we focused on paying off all other consumer debt before turning to the final non-mortgage debt, the student loan from graduate school. Reason is that if things got rough, this debt could be put into deferral. Of course, the flip side of this is that student loan debt can't be discharged in bankruptcy while credit card debt can. (Please no diatribes about the morality of bankruptcy; not the point here.)
I have read about people having issues trying to increase their payments on student loans — loan administrator applies it to next month's payment instead of the balance. So we are saving every month in a savings account towards a goal of paying off the balance by the end of the year. That way, also, the account acts as an emergency fund for us just in case (my husband works for a defense contractor whose had multiple layoffs, and if the sequestor is implemented, will have many more, so these are scary times for us right now).
Cassi says
I'm suppose to start college in the fall, and my biggest fear is the debt I will be in. Roughly $20000 per year, instate. Yikes. I'm waiting to see how much money I'm getting in scholarships, but still.
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valleycat1 says
Cassi – think long and hard about getting into $80K, or even $40K student loan debt. Look at all the comments above! And that's just the relatively few people who read this particular blog. You would be better off getting a job and going to school part-time as you can afford to pay for it, unless your career & degree choice is practical enough (i.e., you'll be employable with a bachelor's making a decent amount of money) that it will enable you to pay this off quickly. Loan deferment just means you keep racking up interest & other fees so the debt keeps growing while you aren't paying it off, so that isn't a viable solution. There is information available online about what your college loans should max out at based on your anticipated post-graduate income potential. If you haven't decided yet on a field you're pursuing, don't sink a lot of money into college until you do decide – many of the more technical or professional fields these days have a fairly set schedule of courses you have to take over 4 years.
Michelle says
School is definitely expensive. Have you looked into taking some classes at the community college? I took classes one summer there and was able to knock out a whole semester at my university (I took 12 credits one summer). I made sure they would all transfer to the university I was currently going to.
Also, make sure you get some scholarships! I feel that most schools gives scholarships or grants, so look into those. Also ask to see if they will give you anymore. Usually a letter to someone at the school can go a long way.
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