In our Money Mic series, we hand over the podium to people with controversial views about money. These are their views, not ours, but we welcome your responses.
Today, one woman shares how getting denied for financial aid left her with a massive amount of student loan debt that's greatly impacting her daily life -- and, potentially, her future.
The day I filled out the Free Application for Federal Student Aid (FAFSA) form, I was a happy high school senior who had just been accepted to Ramapo College of New Jersey, a public school where I'd be paying in-state tuition. I had chosen the college in part because I didn't want to graduate with hefty student loans -- and figured that I'd get a decent aid package based on my family's financial situation.
My parents' accountant helped me and my dad fill out the FAFSA, which determines how much we were eligible to receive in federal student aid through grants and low-interest federal loans. He was the one who first told us that he suspected "we made too much" for me to receive aid. But I refused to believe him.
The yearly tuition, as well as room and board, came out to $22,000 a year. My family's income was about $85,000 -- a sum that was stretched thin. My mom was on permanent disability because she suffered from a condition that affected the discs in her neck, so my dad, who worked in the casino industry, had to cover living expenses for me, my mother, my brother and our grandmother, who lives with my family.
I didn't expect to get a whole lot of financial aid, but surely, I thought, somebody would see that it wasn't going to be feasible for my parents to help me pay for tuition in addition to all of their other expenses.
When I got official word from the federal government about my aid package, I cried. I had been denied any grants, and they really limited the amount of federal loans I could borrow -- only about $7,500. I actually thought that I wasn't going to be able to go to college. I didn't have rich relatives who I could beg to help me pay for tuition, and I knew my parents couldn't really help.
I was discouraged, especially since I thought I had done everything right. I studied hard and got mostly A's in high school. I was going to a state school, not some fancy private university. How could the system have failed me -- and how would I find a way to pay for college?
Public School, Private Loans
On top of the $22,000 a year that I'd need to cover tuition and room and board, I figured that I needed another $2,000 to pay for books (some cost as much as $400!) and the additional credits I would need in order to take my CPA exam to become an accountant. This meant that I had to sign up for two summer sessions and a winter session of extra classes when most other students had breaks.
I went ahead and applied for the $7,500 in federal subsidized and unsubsidized loan amounts I was eligible to receive. Every year, I also reapplied for aid through the FAFSA, and every year I got the same response: no grants and a similar amount of limited, low-interest loans.
Over the course of four years, I ended up borrowing roughly $30,000 in federal loans. I pieced together the rest through five private loans, which added up to about $100,000, factoring in the interest.
I covered other day-to-day costs by working at the student activities office throughout college, as well as a paid internship my senior year. When I couldn't afford certain books, I'd borrow them from friends or make photocopies of what I needed.
During my first two years of college, I conveniently forgot about how much money I owed. I just told myself I'd figure it out when I graduated. Then, in my junior year, I had to start paying interest on a few of my private loans. The payment option that most students get -- a six-month deferral after graduation -- wasn't available for these loans, so I was forced to pay $175 a month. It killed me that this money never touched my principal, but it was the only way I was able to afford college.
Reality Bites: The $1,400 Monthly Loan Payment
I graduated in May 2013 with an accounting degree and was fortunate enough to land a job at a big accounting firm before I even graduated. I counted myself lucky: While many of my friends were frantically sending out résumés and wondering whether they'd have to move back home, I was negotiating my salary, which is north of $50,000.
As soon as I graduated, I started paying $178 a month in interest toward the private loans that I'd already started paying my last two years of college. Six months after that, when the other loans kicked in, my payment ballooned to $1,415 a month.
It felt like a mortgage payment -- except that I would have received a better interest rate on a mortgage than I did on most of my private loans. My subsidized federal loan has an interest rate of 3.4 percent, and the unsubsidized loan is at 5.6 percent. But my lowest-interest private loan has a 7.5 percent rate, and the highest is at 9 percent. The private loans are really what's killing me.
I've looked into consolidating, but I haven't had luck finding an option that works for me. I'd either have to accept a variable rate, which seems too risky because the interest rate, by law, could shoot as high as 18 percent. The other option is to consolidate and pay the average on all of my combined interest rates -- but with an additional .25 percentage tacked onto the rate. Plus, I would have to extend my loan repayment time from 10 years to upward of 25. This would ultimately mean paying close to $300,000 for my loans!
Since I can't bear to give the lenders so much more in interest, I've had to wrap my head around the fact that I'll be paying $1,415 a month for the next 10 years.
A Seriously Bare-Necessities Budget
My take-home pay is a little more than $3,000 a month -- and roughly 45 percent of that goes toward my student loan payments. When that much of your paycheck is eaten up, something's gotta give.
For starters, my boyfriend and I got engaged, and we realized that if we were going to save for a wedding, we'd have to move in with his parents. When we lived on our own, our rent was $1,200 a month, which wasn't that expensive, but the $600 I was paying wasn't chump change either. After the loan payments and rent, I was left with about $1,000 to cover gas, my cell phone bill, groceries and other expenses.
Moving in with my fiancé's parents allowed me to allot my saved rent money -- and then some -- toward saving for the wedding. Now my readjusted monthly budget looks something like this: 45 percent goes toward my student loans, 40 percent funnels into our wedding fund, and the remaining 15 percent is spent on bills, gas, food and any other expenses. I pay for necessities and necessities only. I also contribute 3 percent to my company's 401(k), but that comes directly out of my paycheck.
I'll be forever grateful for my education, but something is wrong with the system when a student like me doesn't get financial aid -- even after repeatedly applying for it. And I even consider myself one of the lucky ones: If I were making less, I don't know how I'd be able to afford to pay for the loans, much less anything else.
Even with my decent salary, there are times when I feel like I have nothing to show for it. I get to work at 9 a.m. and don't leave until 11 p.m. I won't let myself spend on items as simple as new shoes for work, and I can't join my coworkers for drinks.
My fiancé and I are petrified that we may never be able to get a good interest rate on a mortgage -- much less afford a home -- because of my debt-to-income ratio. He's supportive, but I know he feels the stress of my debt, especially since he has no college loans of his own. There have been months when he's had to give me his ATM card, in case I really needed cash but didn't have any.
If there's any bright side, it's that I'm definitely in the habit of saving. My fiancé and I have talked about how it would be great to continue paying ourselves $1,400 a month after my loans are paid off. Sure, it'll be nice to have a little more wiggle room in our budget, but that money could also go toward future goals, like buying a house or contributing more to my 401(k).
And I'm hoping that as my salary goes up, I'll be able to pay off the loans sooner than my current 10-year window. In the meantime, I'm definitely struggling -- and left wondering how many others are too.
This post originally appeared on LearnVest.
LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc. that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. LearnVest Planning Services and any third parties listed in this message are separate and unaffiliated and are not responsible for each other's products, services or policies.
However, Brian McBride, an associate producer at CNN and a 2010 graduate out of Arizona State University, managed to pay off $26,500 in debt in just two years. He explained his plan on CNN Money's website. McBride owed $20,500 in student loan debt and $6,000 for his 2003 Honda Civic. He said he tackled his car loan first to pay down a higher interest rate during a six-month grace period following graduation on his student loans. In his first job out of college as a local reporter in Green Bay, Wisc., he lived frugally while working for $13 an hour. Read more here.
From her story: I started by making a budget for each of my expenses, and then made it a point to look at my bank account and my budgets spreadsheet once a week to categorize all of the money going in and out. I also calculated my monthly expenses, and tried to determine what it would take to put $500 to $1000 extra each month–on top of the $800 in minimum payments I was already making–toward putting a further dent in my loans. Since I couldn’t do it based on how much I was earning, I got creative: - Rent: I gave up my Dupont neighborhood studio and found a roommate in a cheaper neighborhood, which halved my rent. Cable I canceled my subscription, and streamed shows for free on my computer instead. - Gym: Rather than pay $95 a month for health club membership (D.C. gyms are expensive!), I started using the free facility at work, joined a running club on Meetup and streamed free workout videos online during rainy days. - Phone Bill: I limited my data usage and calls, and switched to a plan that cut my monthly bill by $30. I even told friends not to text me! - Entertainment: Instead of relying on happy hours and dinners out, I found free events on Meetup, like hiking trips and book clubs. Or I’d invite friends over for food, and they’d bring their own beer. I also only ate out if it was beneficial to my career, like networking lunches. - Travel: I went to Peru in the winter of 2010, and this year, I’m planning on Malaysia — both countries where the exchange rate is great. I stayed in hostels, and ate where locals do instead of going to pricier tourist spots. Plus, I put a little aside each month, so the expense is built into my budget and doesn’t take away from my savings. (Make travel a Priority Savings Goal in your own budget.) Read the whole thing here.
Kristin Wong paid off $12,000 in a year, despite having only a $10/hour job. In an op-ed for MSN Money, among other things, she said she moved in with her parents and held back from taking a trip or shopping for new clothes.
Sarah Knutson explained how she paid off $30,000 in debt in two years: With her first job, she made $2,000 a month and lived at home. "Each month, I repaid $1500 in debt, leaving $500 of 'fun' money," Knutson explained. She also skipped skiing and snowboarding trips.
Ohio state Rep. Christina Hagan may be an elected lawmaker, but she's waiting tables and working at her family's heating & plumbing business to try to pay off her $80,000 in student debt.
A couple paid off $30,000 in one year by skipping out on having a cell phone at all, and skipped out on having Internet and cable TV packages. "We stuck with dial-up [Internet]," one of them said.
Art Institute of Atlanta graduate Amy Kroezen collectively owed $116,000 with her husband. Neither of them made more than $35,000 a year. They decided they would commit one of their incomes solely to paying off their debt. Among other steps, she took to building her own furniture since they couldn't afford it, constructing a king-size bed, dining table and toy box. She made her own cleaning supplies and grew some of their own food. After four years, they've paid off $103,168 of their student loan debt.
Kent Lister paid off $36,000 in 7 years, saving $2,907 in interest. Tax returns had to go back into his loans, he picked up a weekend job, and then "snowballed" his payments: "When you pay off one loan/recurring payment, add that amount to your next loan. Once that loan is paid off, take those two amounts and put it into your third payment (like a snowball, it just keeps growing). Repeat until all debt is cleared."
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