Student loans

praying for student loan forgiveness

Is Student Loan Forgiveness Fair?

Money Maroon

It does not matter how much is forgiven and it really does not matter the reason. Forgiving student loans is a divisive issue. There is one main group that will directly benefit from student loan forgiveness. This group includes those for whom student loans are forgiven. On the other hand, there will aways be a number of groups that will be aggrieved. This group of the aggrieved includes at least those who have paid off their student loans, those who never took out student loans and those who did not have the opportunity to take out student loans because they did not attend college.

Student Loan Forgiveness

There is a student loan problem. Some students were victims of predatory lending from opportunist institutions. In some cases, students were given loans and then obtained worthless degrees. In some cases, the institutions were not up to par academically. For some, the college was closed down and students were stuck with student loans but no degree. For others, student loan terms were not clearly explained and students now owe more than they borrowed. In all cases, for those affected, it is likely that they are stuck with a mountain of student loans and no true path to ever pay off the borrowed amount plus the accruing interest.

On balance, should these students have done their due diligence? Should these students have read the fine print and better understood what they were signing up for? Also, should there have been more government oversight to prevent institutions from selling these subprime student loans to vulnerable students? Something to think about.

Students Who Paid Back Their Student Loans

There are some students and adults who have now paid back their student loans. Essentially, they made it a priority to not take out more than they needed during their school years. Many of these individuals did not attend their dream school because of the cost. Instead, they settled for a less expensive option. They may have also worked extra jobs. Some did not take fancy spring break trips while in college. Others have forgone buying nicer homes or cars. Instead of spending, these students were cost conscious. They buckled down and payed back their student loans.

How would you feel if you were one of these students when you hear of others getting student loan forgiveness? You will likely feel robbed. You have made the sacrifices and paid back what you owed. Now, you are being penalized for your diligence, being proactive and responsible. Would you view this a being fair?

Students Who Did Not Take Out Student Loans

Let’s face it, we live in an unequal society. There are a group of students who attended college and did not have the need to take out student loans. This could have been a result of their parents saving over time and allocating funds specifically for college. For others, their parents were in the position to pay their tuition as they went through college. Still, there are many who simply worked during college and were able to make enough to pay their costs or obtained scholarships.

For those who prepaid for college, those who worked multiple jobs to pay their tuition, and those who studied and obtained scholarships, how is student loan forgiveness viewed? Will they view student loan forgiveness as a penalty? Why work hard during college and forgo all the parties, why prepay for college, why work hard and obtain scholarships when the student loans will be forgiven anyway? 

Those Who Did Not Attend College

Of the groups that will likely view student loan forgiveness in a bad light, those who did not attend college will likely be the most upset. They are the most likely to be upset because as tax payers, they may view student loan forgiveness as paying for something they did not have the opportunity to part take in. These individuals are essentially paying for someone else’s college education or mistake. They may also see student loan forgiveness being applied to college educated citizens as causing a further divide between the have and the have nots. Some who will be helped by student loan forgiveness, where they attended reputable colleges, may end up earning more than those who did not attend college. So in effect, as a tax payer, those who did not attend college would be further subsidizing these individual’s lifestyle. For many, this will be viewed as being unfair. 

The Greater Good

No matter your stance on student loan forgiveness, one thing to consider in this student loan forgiveness debate is the greater good. Will forgiving a portion of student loans help the overall society in general terms. If citizens are not buried by student loan payments, will this translate into increase economic activity as more funds will be available to spend. If this works perfectly, all of society will benefit. However, will this affect personal responsibility and the motivation to live within ones means if there is a possibility that your debt will be forgiven?

Whatever the decision with regard to student loan forgiveness, one thing is for sure, the debate will continue.

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Video Summary

Debt Free

Need A Total Money Makeover?

Money Maroon

Today, debt has become one of the tallest life hurdles to overcome. Now more than ever, for many, debt accumulation begins during the college years or earlier. The culprit is often student loans, and depending on one’s circumstances, it is a matter of when and not if credit cards will become a part of the total debt. How can this trend be stopped? First, we must understand the issue: more often than not, debt starts to accumulate in view of lack of financial education. A possible solution is education and a total money makeover.

We Act Only When Necessary

Like most issues in life, it is best to understand debt before it becomes a problem – preventative care. However as humans, we typically wait until we have a full blown problem before we attempt to remedy a situation. With regard to debt and our financial health, we approach preventive care for finances in the same manner. Unfortunately, many delay the pursuit of financial education until they already have financial issues. 

Debt, The College Years

If we look specifically at those in college, due to the lack of financial knowledge, debts are usually ignored until graduation. Upon graduation, most students are happy to reflect on what they have achieved. Years of study and hard work is rewarded with a degree, friends, memories and a mountain of student loans. The hope is that aside from the degree, new graduates have chosen a career path that allows them to financially support the life they seek. We know that this is hardly the case. For those who seek employment, getting the first job is exciting, but the salary may not be as exciting.  The average salary for an individual holding a bachelor’s degree is about $45,000-$50,000 depending on the degree and area of study. 

You’ve Got Mail

Whether or not gainful employment is obtained, within 6 months of graduation the grace period for student loans will end. The debts accumulated during college, in short, can no longer be ignored. The bills will literally be in your mailbox. Do not worry, even if you do not provide an updated address, the student loan servicers are typically very good at tracking you down to collect. 

Six months following graduation when the bills begin to hit college graduates’  mailboxes, it is a terrible time to begin learning about money, and money management. For those who could not obtain gainful employment, you could not select a worst time. Yet, when the first bill to student loan borrowers turns up in the mailbox, this is the time when many millennials usually decide to learn about money management. Not by choice, but by necessity. 

The Total Money Makeover

Graduation removes  the luxury of student loan ignorance and the steady supply of play money. Graduation brings financial reality. This reality is beginning to force many millennials to address their financial situation head on. The financial reality is so stark that many millennials are not only aiming to address their student loans, but many are taking steps to be debt-free. For many, Dave Ramsey’s total money makeover has been a go to guide. The total money makeover is a complete mind makeover and a great start to making lifelong financial changes. 

Total Money Makeover Principles

The total money makeover works by forcing you to be  aware of your finances. This includes listing your debts from smallest to largest regardless of interest rate. Below is a short summary of the method:

  • Step 1. Save $1000 for a starter emergency fund.
  • Step 2. List your debts from the smallest to the largest regardless of interest rate. Make the minimum payments on all your debts except on the smallest debt. On the smallest debt, pay as much as you can. This is the debt snowball method.
  • Step 3. Save 3-6 months of living expenses. 2020 has shown us how important it is to have at least 6 months of living expenses saved. 
  • Step 4. Invest at least 15% in a retirement account.
  • Step 5. Save for children and college. 
  • Step 6. Pay off your home 
  • Step 7. Build wealth and be generous. 

Your Situation Is Unique

As we can see with these steps, using the total money makeover, the majority of individuals after graduation will be stuck at step 2 – getting out of debt using the debt snowball method. This is completely okay because the goal is to be debt-free. Also, because you are paying off debt does not mean that you should not contribute to a 401K. This is true especially if your employer is providing a match. The total money makeover is a guide and it is best to apply it based on your situation.

The Goal To Be Debt Free

Be Debt Free - Total money makeover

Ultimately, the goal is to become debt free and pursue financial independence. Focusing on paying off debt is important, as interest payments are a detriment to wealth accumulation. How liberating would it be if you were not tied to student loans and/or credit card balances? What would you do if money was not driving all your life choices? What if you could make decisions based on your happiness and not the financials? Your freedom can be achieved by applying a method that you will adhere to over time. Try to apply the debt snowball method to your debts. Find an extra income source and put all extra income towards paying down debt. Build your emergency fund and march toward financial independence. 

Being debt free and achieving financial independence requires sacrifices. While you implement the total money makeover, for a while, you may experience no vacation, no eating out, skipping the coffee run, decrease subscription services, and may even have to cancel plans with friends. But this is a start to building the foundation for wealth accumulation. This is a journey that requires consistency. The end goal is to be financially free and financially resilient. Will you allow a night out with friends or your coffee habit get in the way of your financial progress? I think not.

Conclusion

Today, debt has become one of the tallest life hurdles to overcome. Now more than ever, for many, debt accumulation begins during the college years or earlier. The culprit is often student loans, and depending on one’s circumstances, it is a matter of when and not if credit cards will become a part of the total debt. How can this trend be stopped? First we must understand the issue: more often than not, debt starts to accumulate in view of lack of financial education. A possible solution is education and a total money makeover. Journey to financial independence with a method that works for you and your ever evolving financial situation.

Co-Authored by Paigemera A.

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Student Loan Forgiveness

Your Student Loan Forgiveness Options

Money Maroon

There is an on going debate with regard to student loans and student loan forgiveness. Some are asking for partial student loan forgiveness. Others are calling for a total forgiveness. Some would like to reform repayment options. While many are of the belief that changes to the current system are unwarranted. This article will review current student loan forgiveness provisions as they stand today.

Student Loans

Current Student Loan forgiveness

Before we review the different student loan forgiveness programs, it is important to know the difference between student loan forgiveness, cancellation and discharge. According to the U.S. Department of Education, if you are no longer required to make payments on your loans due to your job, this is generally referred to as student loan forgiveness or cancellation. On the other hand, the U.S. Department of Education notes that if you are no longer required to make payments on your loans due to other circumstances, such as a total and permanent disability or the closure of the school where you received your loans, this is generally called a student loan discharge. 

Now that we have an understanding of the differences between student loan forgiveness, cancellation and discharge, below is a general review of available programs.

Public Service Loan Forgiveness (PSLF)

The PSLF program is generally available to those who are employed by a government or not-for-profit organization. The PSLF program allows for the forgiveness of any remaining balance on Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer. While the requirements may appear simple, it is important to ensure that you satisfy the requirements of this program. Ensure that your payment plan, payments and employer satisfy the requirements of this program. For further information on how to apply and related qualifications with regard to the PSLF program, please click here.

Teacher Loan Forgiveness

Teacher’s loan forgiveness may be available for those who teach full-time for five complete and consecutive academic years in a low-income elementary school, secondary school, or education service agency. Under the Teachers Loan Forgiveness program, you may be eligible for forgiveness of up to $17,500. Specifically, forgiveness may be for your Direct Loan or FFEL Program loans. For further information on the Teacher Loan Forgiveness program, please click here.

Closed School Discharge

Some are in the unfortunate position of having their school close while they are enrolled or soon after they withdraw from the school. Thankfully, these individuals may be eligible to discharge federal student loans accumulated during time at the school. The closed school discharge program is available for Direct Loans, FFEL Program loans, and Perkins Loans. For further information on the Closed School Discharge program, please click here.

Perkins Loan Cancellation and Discharge

The Perkins Loan Cancellation and Discharge program is available for Federal Perkins Loans only. You may be eligible to have all or a portion of your Federal Perkins Loan canceled (based on your employment or volunteer service) or discharged (under certain conditions) under this program. This also includes Perkins Loan Teacher Cancellation. For further information on the Perkins Loan Cancellation and Discharge program, please click here.

Total and Permanent Disability Discharge

Direct Loans, FFEL Program loans, and Perkins Loans may be discharged if you are totally and permanently disabled. You may also be eligible to have your Teacher Education Assistance for College and Higher Education (TEACH) Grant service obligation discharge if  you are totally and permanently disabled. For further information on the Total and Permanent Disability Discharge program, please click here.

Discharge Due to Death

In the unfortunate event of death, federal student loans may be discharged due to the death of the borrower or of the student on whose behalf a PLUS loan was taken out. Discharge due to death is available for Direct Loans, FFEL Program loans, and Perkins Loans. For further information on Discharge Due to Death, please click here.

Discharge In Bankruptcy

Student loan holders in rare cases may discharge Direct Loans, FFEL Program loans, and Perkins Loans in bankruptcy. Note that this process is not automatic and we stress, rarely can you discharge student loans in bankruptcy. For more information of student loan forgiveness and cancellation, please click here.

Borrower Defense To Repayment

The Borrower Defense to Repayment program is available if you took out loans to attend a school and the school did something or failed to do something related to your loan or to the educational services that the loan was intended to pay for. This program allows you to discharge your federal student loans based on borrower defense to repayment. The requirements for this program is very specific. Note that the specific requirements to qualify for a borrower defense to repayment discharge vary depending on when you received your loan. For further information on the Borrower Defense to Repayment program, please click here.

False Certification Discharge

For those with Direct Loans and FFEL Program loans, you may be eligible for the False Certification Discharge program. The False Certification Discharge program is available under a very specific situation. You may be eligible for discharge of your federal student loan if your school falsely certified your eligibility to receive the loan. For further information on the False Certification Discharge program, please click here.

Unpaid Refund Discharge

The Unpaid Refund Discharge program is available for a specific situation. If you withdrew from school and the school did not make a required return of loan funds to the loan servicer, you may be eligible for discharge of the portion of your federal student loan(s) that the school failed to return. In particular, this program is available for Direct Loans and FFEL Program loans. For further information on the Unpaid Refund Discharge program, please click here.

Conclusion

There is an on going debate with regard to student loans and student loan forgiveness. Some are asking for partial student loan forgiveness. Others are calling for a total forgiveness. Some would like to reform repayment options. Still, many are of the belief that changes to the current system are unwarranted. Whatever your thought on the current situation, we can all agree that student loans can be a detriment to financial independence. Knowledge is power, if you have student loans, know the programs that are available to you.

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Paying Off Student Loans Is The Key To Freedom

Paying Off Student Loans Is The Key To Freedom

Money Maroon

Let’s face it, in the current education climate, student loans are here to stay. While there are some talks of reforming higher education in the United states, it is unlikely that post-secondary education will be cheaper over time, or free. While there may be some loan forgiveness in the future, a complete forgiveness of all student loans is unlikely. If you have student loans, know that there is a light at the end of the repayment tunnel. Paying off student loans can be the key to freedom.

Student Loans Are Here To Stay

In today’s world, no matter your level of education above high school, whether an associates degree, bachelor degree or a professional degree, it is highly likely that you will graduate with student loans. It has become a fact of life. This is why it is so important to think about paying off student loans. Do not fall into the trap of thinking about your student loans only following graduation. It is important to be well aware of the costs and benefits of taking out student loans before you borrow a dime.

Be Strategic

If you are strategic with your education experience, your student loans can represent the ultimate investment in yourself. It may potentially be a way to a higher paying job and life long experiences. However, student loans can be a life changing burden and a huge economic cost. Student loans can be a detriment or an accelerant to a great financial future.

Once you have accumulated your loans and have graduated, one of your biggest expenses going forward will be the monthly cost to repay your student loans. For some, this will rival mortgage costs or a car payment and can be financially crippling. In many cases, your student loans will be the barrier to freedom. Freedom to choose where you want to work and the type of work you will be doing.

Paying Off Student Loans 

With regard to your job after graduation, having a mountain of student loans can limit your decisions and opportunities significantly. Do you take a job that will help in paying off student loans at a very fast rate, take a job that pays less but is what you want to do, and if you are lucky, you will be able to do both (the perfect job). For most, the perfect job that is high paying and also focused on what you want to do is a rarity when you leave school. So the decision is frequently, (a) do you take the high paying job that may not be in your specific area of interest, or (b) earn less but enjoy your job.

Paying Off Student Loans  – Short Term Pain For Long Term Gain

While I do believe that life is short and you should enjoy your time on this planet, I would not advocate for taking the lower paying job, if it pays significantly less. Taking a high paying job that speeds up your time to freedom could be beneficial. Financial Independence takes time, the earlier you start the faster you will get there. Taking the job that accelerates paying off student loans should be considered in view of the future implications.

Do the math, if you did not have a student loan payment, how much money would you need per year to be able to live comfortably? I am not talking about living in a lap of luxury, I am talking about having a home for your family and being able to take care of your necessities and  reasonable wants. I can almost guarantee that the amount is significantly less than what you may have thought.

Conquer the ball and chain of student loan that is holding you back

By obtaining employment that allows you to pay off your student loans at a faster rate, you are able to decrease your time under the thumb of a student loan payment. Whatever method or tricks you use to pay off student loans, your future will be the winner. By paying off student loans, you are able to achieve freedom, not  total financial freedom, but the freedom to move from a high stress job to one that you like and find fulfilling. The freedom to get your time back. The freedom to move locations, because a high paying job is not needed for you to survive.

Be Proactive

Instead of waiting on what the government may do with regard to student loans, be proactive and make progress in removing the ball and chain that is student loans and conquer life’s challenges. In any case, if you are aggressively paying off your student loans, if a certain amount is eventually forgiven by the government, that forgiveness will only accelerate your time to freedom from student loan debt.

Conclusion

Let’s face it, in the current education climate, student loans are here to stay. While there are some talks of reforming higher education in the United states, it is unlikely that post-secondary education will be cheaper over time, or free. While there may be some loan forgiveness in the future, a complete forgiveness of all student loans is unlikely. If you have student loans, know that there is a light at the end of the repayment tunnel. Paying off student loans can be the key to freedom.

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Crushing student loan payment

Student Loan Payment: Attack And Pay Off $200,000

Money Maroon

Once you graduate, you typically have six months before the first student loan payment is due. If you are close to graduation or a recent graduate, it is time to pay attention to what you owe. If you are already into your student loan payment period, it is time to take control. This is a guide to paying off $200,000 in student loans. In this post we assume that you are not participating in the federal loan forgiveness program. We further assume that you want to turbo charge paying off your student loans.

Student Loan Payment: You Do Need A Job

First, secure a job that pays a living wage. Following graduation, you typical have six months before beginning the student loan payment journey. As such, securing a job that pays a reasonable wage will reduce the financial stress associated with student loan payment. Keep in mind that although you have six months to begin student loan payment, you may begin paying back your loans early.

As an example, while in school, you can work and pay down your student loans as you go. This can save a tremendous amount of money as you are able to cut down the interest compounding on your student loans. If you are able to pay down the principal of your student loans while in school, this will further reduce your debt load. For those who are employing or who have employed this tactic, great job. If this ship has already sailed, let’s move on to knowing what you owe.

Student Loan Payment: You Must Know What You Owe

Before graduation, shortly thereafter or now,  begin to review all your student loans. Take a look at how much you owe and the interest rate for each loan. Let me rephrase that, know how much you owe and the interest rate for each loan, write it down. Order your loans from highest interest rate to lowest interest rate. In doing so, you are identifying the loans that will cost the most. The aim here is to attack and pay off the loan having the highest interest rate first, thus reducing the total cost of the loan. The first step is to identify the target loans.

Student Loan Payment: You Must Know Your Minimum Payment

To take control of your student loan debt, you must appreciate your monthly payment. Note what your minimum student loan payment will be for each loan per month for the term of the loan. Next, add together all your minimum payments per month. This is the minimum payment due for your entire student loan debt load per month. Know this number. Ensure that you have structured your life in such a way that you are able to make these monthly payments. It is important to note that the plan is not to pay the minimum student loan payment for the standard 10-year period. However, it is good to know early what these minimum payments are.

Debt Avalanche

Now the plan. Now that you have reviewed all your student loans and you know the total minimum student loan payment per month, it is time to implement the plan. Attack your loan having the highest interest first. Look at your budget, and determine how much additional money you can dedicate to your student loans each month. This amount will be a sum above your minimum payments. The aim is to dedicate this amount (additional money) to your highest interest rate loan while making the minimum payments on your other loans each month. Once your highest interest rate loan is paid off, you can thereafter dedicate the additional money + minimum payment of the highest interest rate loan you just paid off to the loan having the second highest interest rate while maintaining minimum payments for your other loans.

Implementation And Example

As an example, if you have 3 loans, loan 1 having an interest rate of 5%, loan 2 having an interest rate of 4.5% and loan 3 having an interest rate of 4%. Using the above method, you would pay your additional money to loan 1 each month. For loan 1, you would pay loan 1’s minimum monthly payment + the additional amount. For all other loans, you would pay the minimum monthly payment. Once loan 1 is paid off, your additional amount + the minimum monthly payment for loan 1 + minimum payment for loan 2 would be paid to loan 2 while maintaining minimum payments for loan 3.

Using this method, mathematically, you would be paying off your debt more quickly and with less interest.

Additional Tip

Additional  tip,  most loans provide a reduction in interest rate if you sign up for automatic payment. Prior to signing up for automatic payment, ensure that you are able to afford the payment amount. If you are, sign up for automatic payment. This will also reduce your total payment and reduce your payment timeline.

Conclusion

No matter where you are with regard to your student loan payment, it is time to take control. By reviewing what you owe and attacking your student loan having the highest interest rate, you will pay off your student loans more quickly and with the least interest cost. By taking control of your student loan situation, you can turbo charge your student loan repayment and pay off $200,000 in student loans. 

Paying off debt is essential on the journey to financial independence. Start attacking your student loans today.

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Stacking Money JoToFi.com

High Earners And High Debt

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When we see someone driving a nice car or living in a big house in the nicest of neighborhoods, we often assume that these individuals are for better or worst higher earners living the dream, living the easy life. But are they?

Stressed

Many high earners spent years in school to get where they are. Most high earners work in high pressured professions and live in broken homes as a result of the long hours required to advance their careers. No wonder high earners tend to have high rates of suicides and elicit drug use.

Pay Check To Pay Check

This may be surprising to many, it is not atypical for high earners to live pay check to pay check. Simply put, those nice cars carry a nice car payment and a nice cost for insurance coverage. Those nice homes comes with a nice mortgage and nice costs of up keep (insurance, heating, cooling, landscaping, house keeping).

What about the family? Private schools for the little ones, those lavish family vacations and those social expenditures. You must keep your social status if you want to be in certain social circles.

 But with those high salaries, they can afford it, right? As we tend to do at JoToFI.com, let us use examples. 

Doctor And Lawyer

University

Let us look at the financials of a doctor and a lawyer. At about the age of 22, both our future lawyer and doctor will graduate college. 

For all costs, let us use 2019 numbers for a rough estimate. Again for simplicity, we will use the average costs of public and private education. We will also assume only public or only private education from university to professional school for our estimates.

  • Average public university cost per year: $10,116 
    • Average public university cost to graduation: 4 x $10,116 = $40,464
  • Average private university cost per year: $36,801
    • Average private university cost to graduation: 4 x $36,801 = $147, 204

Interest

Let us assume that our doctor and lawyer took out loans for school, for simplicity we will use the cost to graduation as their debt. For simplicity, we will not include interest charges. However, keep in mind that typically, interest accrues from the day the loan  is disbursed. Interest continues to accrue until the loan is paid off. Further, this interest is capitalized. Currently, the interest rate is about 5% annually.

Professional School

After obtaining top grades and racking up debt at university, our future doctor and lawyer must now attend professional school. 

For our lawyer, that is three additional years of law school education:

  • Average private law school cost: $49,095
    • Average private law school cost to graduation: 3 x $49,095 = $147,285
  • Average public law school out-of-State cost: $40,725
    • Average public law school out-of-State cost to graduation: 3 x $40,725 = $122,175
  • Average public law school in-State cost: $27,591
    • Average public law school in-State cost to graduation: 3 x $27,591 = $82,773

Our doctor on the other hand has four additional years of medical school:

  • Average private medical school cost: $52,515
    • Average private medical school cost to graduation: 4 x $52,515 = $210,060
  • Average public medical school cost: $32,495
    • Average public medical school cost to graduation: 4 x $32,495 = $129,980

Now, keep in mind that this debt accrues interest at about 5%-8%

Employment – Lawyer

For most lawyers this is it, at the age of about 25, they must now find a job. If you are aware of this profession, you will understand that the legal profession is bimodal. Meaning, at the top, a select number of law school graduates from top schools can earn a starting salary of $190,000 per year. Whereas at the bottom, the vast majority of lawyers earn a starting salary of less than $50,000 per year. In fact, the average salary for law school graduates is $72,500.

We will assume that our lawyer had amazing test scores, attended one of the top law schools in the country and was able to obtain a position with a starting salary of $72,500.

Employment – Doctor

For our doctor, residency follows medical school. Residency is a minimum of 3 years (based on your speciality) and an average salary of about $57,000 is paid.  During residency, our future doctor will toil day and night. For many residents, the salary provided during residency is simply not enough. As such, our doctor’s loans will continue to accrue interest during this period

Following residency, let us imagine that our doctor foregoes a fellowship, it is time to find a job at about 30 years of age. With an average salary in the range of $160,000 – $200,000, absent the present debt load, our doctor has a bright financial future.

The Math

For our lawyer, with a starting salary of $72,500, without counting the accrued interest, if he attended: 

  • Private schools, he owes about: $147, 204 (University) + $147,285 (Law School) = 294,489
  • Public schools, he owes about: $40,464 (University) + $122,175 (Law School – in State) = $162,639
  • Public schools, he owes about: $40,464 (University) + $82,773 (Law School – out of State) = $123,237

For our doctor, with a starting salary of between $160,000 and $200,000, without counting the accrued interest, if he attended:

  • Private schools, he owes about: $147, 204 (University) + $210,060 (Medical School) = $357,264
  • Public schools, he owes about: $40,464 (University) + $129,980 (Medical School) = $170,444

With the accrued interest added, these numbers would be significantly inflated. This is especially true for our doctor due to the added year of medical school and added years of residency.

Now, is our doctor and lawyer living the dream, living the easy life? If anything, they have loan payments added to the lifestyle that they are expected to lead. Professional Stress + Financial Stress.

High Earners, High Debt

For high earners starting their careers, the debt loads are high. As high earners navigate their way through their careers, in addition to student loans, add the added cost of purchasing a home, getting married, having a family, life style inflation, and our consumerism culture. It should now be clear why so many high earners live pay check to pay check.

We are not telling you to feel sorry for high earners, especially those who live above their means to maintain social status. Our aim with this article is to give you an insight into the life of those who we typically view as “rich.”

Conclusion

Whether you are a high earner or not, your journey to financial independence includes living below your means, saving and investing. Journey on.

In this article, the use of “he” is intended to be gender neutral.

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Student Loans: Debt Avalanche Method And Debt Snowball Method

Student Loans: Debt Avalanche Method And Debt Snowball Method

Money Maroon

Student Loan Reality

In 2018, about 69% of college students took out student loans and graduated with an average debt of $29,800. These students are a small part of the 45 million Americans who owe over $1.56 trillion in student loan debt.  Yes, that is not an error, $1.56 trillion and growing. Based on the numbers, it is safe to assume that graduating students are leaving undergrad with multiple loans.

In view of the above, for many Americans, the journey to financial independence goes through paying off student loans. No matter if you have federal student loans or private student loans, to get out of debt, you must attack these loans.

Paying Off Your Student Loans

While some students may qualify for student loan forgiveness (if you are using this path, please review the requirements), many others do not.  For those who do not qualify for student loan forgiveness, I recommend the use of one of the below two methods (Debt Avalanche and Debt Snowball). 

But before we discuss Debt Avalanche and Debt Snowball, your first step on this journey is to obtain the facts. How much do you owe? What interest rates are you dealing with?

Debt Avalanche

Debt Avalanche – the idea here is to focus on the debt with the highest interest rate first. Use this method in a stepwise fashion:

  • Organize your student loans in a document with the interest rates from highest to lowest on the left and the related loan total on the right
  • Begin paying off your student loans by paying the minimum + extra on the account with the highest interest rate first, while paying the minimum payment on the other loans
  • Once your first targeted account is paid off, roll the payment amount you were making to your next target account (the account having the highest interest rate – the second loan on your list). This payment is in addition to the minimum payment you were paying for this account
  • After the second account is paid off, if you have a third account, then you apply the payments from the first and second accounts to the third one. Again, this is in addition to the third account’s minimum payment
  • Rinse and repeat

The benefit of the Debt Avalanche method of debt repayment is that it minimizes the amount of interest you pay and therefore minimizes the amount you will pay over the lifetime of your loan. However, this method takes discipline, commitment and an appreciation for delayed gratification. If these characteristics do not describe you, the Debt Snowball method may be for you.

Debt Snowball

Debt Snowball – the idea here is to focus on the debt with the lowest balance first. Use this method in a stepwise fashion:

  • Organize your student loans from lowest amount to highest amount
  • Begin paying off the student loans by paying the minimum + extra on the account with the smallest balance first, while paying the minimum payment on larger balances
  • As you pay off one account, the amount that was formally directed to the first account is now added to the payment of the new lowest total. This payment is in addition to the minimum payment you were previously paying on this account
  • After the second account is paid off, if you have a third account, apply the payments from the first and second accounts to the third account. Again, this is in addition to the third account’s minimum payment
  • Rinse and repeat

The benefit of this method is that paying off the smaller student loan and making progress provides momentum and motivation that you can carry through the rest of the process. However, because this process is not focused on the interest rate, you will pay more with this method as compared to the Debt Avalanche method over the lifetime of your student loans.

Consistency And Perseverance

These two methods will aid in your journey to financial independence. Select the method that works best for you and stick to it. The journey to financial independence like all difficult journeys in life requires consistency and perseverance. Get out of student loan debt one payment at a time.

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