The First Student Loan Payment
I made the first payment against my student loans this week.
My grace period is up and the first payment was due December 1. If I don’t make pay down aggressively, I’ll be making my last payment in 25 years. I’ll be 47. My mother is 47. As I have not even been alive for 25 years, I can’t really wrap my head around that amount of time–maybe it’s not such a big deal after all. Until I graduated, everything happened in four-year (or smaller) increments, so thinking in terms of retirement contributions and 25-year loans is a bit of a psychological adjustment.
One of the most difficult things about adjusting to the loan payments is that it’s the opposite of delayed gratification. I’m very good at delaying gratification with my money, saving for something until I can afford it–then again, that’s easy when the most expensive thing you’ve ever bought is a $500 Jamaican vacation. (My car–my poor, miserable beater of a car–was all hand-me-down, as my computers have been.) I just got my credit card, so the only thing I’ve bought on credit is one tank of gas. Which is all to say that loan payments are a boring way to spend your money. I’m used to handing over the cash and getting some sort of awesome thing to play with, or at least the joy of watching a bank balance rise–even a rent check is fun when it’s still novel and cool to be in your own apartment.
There is nothing fun at all about a debt payment. I imagine it would be even worse if I was paying against a car I was no longer driving, or a credit card bill for things I’d already lost interest in. I am completely passionate about the school I went to, the education I received and the fun I had, and think that my debt is a good investment–still, having to actually make the payments is completely lame.
It’s also–at minimum payments–21.8% of my net income. I’m finding this completely manageable, maybe because I’m a good budgeter, or maybe because it just has to be. What’s scary is that my debt load, while significant and higher than average, isn’t anything like the kind of thing journalists write scary articles about, or even the worst that I know of. Friends–particularly friends with family situations that left them without reliable cosigners, or who got their grace periods eaten up by paperwork malfunctions–are in even choppier waters. I believe that a whole generation over here is going to get in trouble by delaying mortgages and retirement contributions in favor of student loan payments.
As far as I can tell there are two silver linings (well, besides the education I got, which I really do think was worth it). The first is that the size of my student loan payments, together with the amount I save, is forcing me to live on less than 70% of my (net) salary. If I can keep my cost of living from inflating faster than my salary, that proportion could result in some pretty sweet savings in a few, you know, decades. The second is, of course, that I have Queercents to share my inner turmoil with as I move through the process of repaying my loans!
I think you’re right–this generation is going to be saddled with student loan payments for quite awhile. It’s ridiculous that the costs of college tuition increase at a much higher rate than inflation. How in the world are we supposed to save enough?
Kudos to you for just having a tank of gas on your credit card. If you’re able to keep your debt at zero or close to it, you’ll be in great shape.
I’m betting you’ll have those student loans paid off well before you’re 47.
You got an education, excellent! Now get a job and do whatever it takes to get those loans paid off. I worked 2 jobs for a few years, took my girlfriend to daytime movies and did not buy anything expensive. It is tough for the short term but I knocked out 40K in 3 years. No trust funds, just long hard work then take a year off and see the world. Build yourself a project plan and stick to it.
If you have good credit and are responsible, one option that works great is to get a credit card with a 0% promotional APR for 6 or – ideally – 12 months. Use your credit card to pay off as big of a chunk of your student loan as you know you’ll be able to save before the grace period expires. That will knock quite a bit off interest payments.
I did this with my student loans (about $40,000). I paid $5,000 towards my loan in one payment, using a CC that had 0% APR for 12 months. My monthly student loan payment was $440, and I calculated that I would be able to save at least $500/month to apply to the loan. After I applied $5000 to the student loan, I didn’t owe them anything extra for 11 months, so instead of paying them I paid myself $415 (5000/12) into an ING money market account (earning 4.9%) every month to prepare to pay off the CC. I also sent an extra $90 or so every month – anything extra – to continue paying down my student loan. I was able to pay back the $5000 in full right before the grace period on my CC expired, earned $130 in interest on the money I was saving towards the CC bill, saved money on interest charges, and knocked a couple payments off the life of the loan.
If I had paid 440 monthly, about half of each payment would be towards only the interest. After 12 months, I would have paid off only $2,800 of my loan, and paid another $2,500 in interest. If I had paid a lump sum of $5,000 and continued to send in $100/month, I would have paid off $3,900 of my loan after 12 months and paid an additional $2,330 to interest. I actually ended up sending in more per month, just because I hated having debt so much.
The numbers after 12 months:
Monthly payments of $440
————–
$2,517 interest
$37,203 remaining on loan
Lump sum of $5000 + $100/month
————–
$2,335 interest
$36,101 remaining on loan
Lump sum of $5000 + $150/month
————–
$2,317 interest
$35,483 remaining on loan
I recommend this approach if you are responsible enough to make sure you can pay off the CC in full, otherwise you’ll negate any savings you might experience. It worked great for me though.
Another option (although you may find it depressing) is to do a calculation of your net worth every month. You might not be seeing a bank balance go up, but you will see a net worth that approaches positive!
Melissa: Sounds like you’re doing fine and you’ll stick to your plan. Here’s a guest post at GetRichSlowly that others might find helpful on the topic of repayment.
I also used the 0% credit card trick, but you must be a very good budgeter and hope that nothing happens. In retrospect, it was very risky.