Overwhelming Student Loan Debt
Hi, This is my first time on the site and it's encouraging to hear that I am not alone and that debt can be managed. I have been in panic mode for about a week when I found out that my monthly payments on my student loans would be $1700. My husband and I have a high income but we are also both admittedly terrible with money. We have about $30k in credit card debt as well. I haven't been able to sleep contemplating how we will ever manage to take on this monthly payment. I have considered getting another job, I have considered what would happen to my credit if I don't make the full payment each month, I have considered suicide. I know suicide isn't the answer - I can't leave my husband to deal with this and we have three beautiful kids that need their mother. It's just so overwhelming. I am wondering if the education was even worth it if it wrecked our lives. I guess it doesn't matter at this point. Any suggestions on where to start?
Hello! First of all, you're not alone. Lots of us have been in your shoes, and some of us still are :)
We have two kids (2 and 7) and a staggering amount of student loan debt (around 200K), from both a grad degree and a law degree. When DH graduated and I finally looked at those loans, I had similar moments of outright panic. The good news is that, with a high income, YOU CAN DO IT. It's amazing how quickly debt disappears when you're really committed to it, and how rich your life can be.
Assuming that your student loans are federal, your first task is to work with your loan provider to make your payments manageable while you pay off the credit card debt. Then, you can tackle the loan debt:
1. IBR. I assume you've already done this, but if you haven't, sign up right away for an IBR plan.
2. If you already have signed up for IBR (or another similar program) and your payments are still that high, consider filing separately. Our taxes are a bit higher because we lose some deductions, but the monthly loan payments shrink from nearly $2500 to around $500 a month.
3. Reduce your income as much as possible through pre-tax contributions. You keep more of your money and it lowers your IBR payments.
4. Use the breathing room in your budget to decide on your own how much money you can afford to throw at the loans.
Here's a quick examples of what we do, using nice round numbers:
Post tax and deductions, we bring home around 10,000 a month.
- $2000 goes to mortgage and escrow
- $2500 goes to groceries, utilities, insurance, childcare, transportation, phone, etc
- $1000 goes to savings goals (RDFs, IRA, 529s)
- $1000 vanishes regularly every month to things like clothes, travels, guitar lessons, entertainment, etc
- $500 is our regular student loan payment
- ... and the rest of it, between 2K and 3K depending on the month, is our snowball payment to loans.
The debt isn't going to disappear overnight, but, for us, the education has proven mostly worth it. We do live more frugally than most people at our income level and consequently most of the people we socialize with. Who cares? I'm perfectly happy to drive a paid-off Honda instead of an Audi, and my favorite shirt is a striped Boden top that I got from a thrift store for $2.99. When I look at those numbers above, I'm actually a little ashamed by how much we spend.
As for being "bad" with money--what I can tell you is that, for nearly two decades of my life I was "bad" with money too. And then I found YNAB :)
I'm happy to talk to you more privately if you want. We have years to go still on this debt repayment journey!
With regards to your daughter, have you done the math? Let's say your daughter's private school tuition is $30,000. With luck, practicing law as a solo practitioner on a part-time basis MIGHT get you around $50,000 and that's probably your best case scenario. On the other hand, working full time for a law firm will bring a salary+bonus to at least $150k, maybe more. You might not start off with that, but I don't know any associate around who starts off with less than an $80+ base (more in big cities). And each year, that will grow. So my point is that you should be able to finance your daughter's education and earn a lot more than if you are working part time, even factoring in the free tuition.
I'm an attorney (non-trad student) and have seen a lot of my classmates go the route you are taking . The problem is that when you take a smaller role in the beginning of your career as an attorney, it's harder to pick that up once you are ready to go to full time. It's not impossible, but it is more difficult.
You also might want to check with firms that seem more creative (family law firms are good about this) to see if you can work there part-time with the understanding that it will graduate to full time later on. There are a couple of attorneys at my that do this, and I know of others as well.
I realize I did not factor in your current salary, but again, the stress of practicing law part-time, plus working a full time job can be very difficult.
Please know you aren't alone. I also have high monthly payments ($1200) along with the credit card debt and I went to law school as well. I now owe more than I even borrowed - $150,000. And I graduated in 1999.
It's hard to breathe. ..and even though I have a high income, too, the more I make my student loan payment just goes up proportionally --- so it's like I can't get ahead. And then I make too much for the interest tax deduction.
I was a public defender for 7years and THEN they instituted the loan forgiveness. But I couldn't continue on that for another 10 years....I was just too burnt out. Now, I find out I probably wouldn't have gotten the forgiveness I thought I would.
Anyway, I've been in and out of forbearance. I am on IBR, just make sure it isn't as much as if you pay straight out (mine isn't much lower). My current loan servicer (EDF) is allowing me to forbear $700 but make payment I can afford (for now) of $500. I know in the long run this is just madness, but I can't afford to default. Does your loan service provider offer anything like this?
Or, is your credit good enough to refinance? I haven't gone this route yet because 1) my credit is terrible 2) I'm too scared to give up the forbearance option by selling to a private lender.
I hear you - and I curse the day I signed these loans and went to law school. First things first - find out what type of loans you have - government subsidized/unsubsidized, or private. I haven't heard of NelNet.
You can only forbear/defer and get Income-Based Repayment (loan forgiveness after 25 years of payments) on government loans. You should still be able to refinance your loans back to the government - go to studentloans.gov and click on the repayment tab. You can refinance your loans with the gov. The benefit of staying with government serviced loans is that you CAN forbear IF you need to.
If you sell your loans to a private provider, like a bank, you can get a much better interest rate (my current rate is 8.5% yikes!). BUT you won't ever be able to forbear. So, if you lose your job, etc.......you risk default if you can't come up with the payments.
Since I haven't been able to get my act together and get financially stable, I've stayed where I'm at.
There are lots of factors to consider here and you've gotten some really good advice. I would second the advice about really considering whether the private school job is worth it. You're not only losing out on potential income now, you're losing out on future income based on raises, possible bonuses, retirement contributions, etc.
I know education is highly personal, and most people instinctively refuse to consider moving their kids. I do get that. I work in education and have Very Strong Feelings about what constitutes good education.
At the same time, I'm a pragmatist. We live in an area with decent, although not outstanding, public schools. Would my child's education really be twenty-six thousand dollars a year better at the private school nearby? No. In some cases, it might--like if she were actually in physical danger, or if the school were so badly run that she couldn't pay attention in class--but in our case, absolutely, 100% not. In almost every case, a kid's home environment is more important than school.
All that's to say, you might want to consider carefully whether you might be losing out on more than you're gaining.
Also, I would stay away from refinancing government loans unless you end up with a much greater and more stable income within a few years. Government loans are forgiven after 25 years even if you're not in public service. You'll owe taxes on the forgiven amount, but it is, at least, an end date. You lose that, plus IBR, plus any forbearance if you refinance.
If you go to the Dept. of Ed. student loan website, they have explanations of all the different repayment plans, how they work, and who qualifies. They also have a repayment estimator that you can use to figure out which is the right plan for you. https://studentaid.ed.gov/sa/repay-loans/understand/plans
IBR may not be the right plan for you, but there are other options. My IBR payments would have been higher than the standard repayment, but the graduated plan dropped my payment about $250/month. It's probably not a great long term option; I think the current plan has me paying off the loans sometime after I'm dead. But it works for a few years while I save money for a house down payment, and the lower payment also means I have a lower debt-to-income ratio when qualifying for a loan.
Still my payments are about 10% of my take-home pay. My interest is nearly 6%, but if I re-finance I'd lose all the benefits that come with the Federal programs like forbearance, if I ever need it, or even the graduated repayment.
I also make too much money to get any interest deduction on my taxes. That's something to think about, too. If your income is lower, especially compared to your spouse, you might be better off filing separately, if you can get a break on the interest.
I could speak on this subject for a long time but one of the best pieces of advice I have is about consolidation. If you haven't refinanced yet, never, ever co-mingle private and federal loans. Federal loans can even garnish your social security should you get into dire financial straights but private loans can't do so.