A Student Loan Prepayment Plan, and Other Small Miseries
Don’t even talk to me about those resolutions I posted. You’d think it was halfway through the year, how much has changed in a month:
- I changed vacation plans and now it’s only going to cost about a fifth of the $2,000 I’d projected. (Yay!) Because I’m doing the sensible thing, and visiting someone I love instead of jetting off for the beach.
- My dad fixed the turn signals on my car, and now I’m thinking maybe I’ll just replace the windshield and not think about getting a new vehicle–so the savings goal is smaller but more urgent. Also I realized I’m past due for an oil change. I hate driving. (Though it’s much less scary when you actually have turn signals.)
- I got–as I mentioned–my wisdom teeth out. I have absolutely no concept of how much I’m going to owe and am waiting with bated breath for the bill.
- Our gas bill was bananas, and my discretionary spending was way, way over budget in January. There are some extenuating circumstances around that, I have plenty of cushion to cover it, and I know that sometimes I go over and under and that’s how it evens out. However, I’m having a total life crisis about my cash flow because of it, and there’s nothing to do but try it another month and see if I can actually manage at the limit I set.
But more important than all of these things, I’m changing plans regarding The Burden I Carry, That Terrible Weight, My Cross To Bear: the effin’ student loans.
There is so much to hate about student debt. I never thought about what a terrifying risk it is to borrow against your future–theoretically, consumer debt is short-term enough that you know your means to pay it back, and mortgages and auto loans are based on current income. Student loans are weighed against your future income, and a degree–even a sensible, professional degree–isn’t a guarantee of income. Lauren at Faux Real has written a beautiful essay about (among other things) the psychological burden of money and making ends meet when your degree isn’t the golden ticket you thought it would be or doesn’t come through right away. Regular readers of her blog know that her degree was to teach English, one of those sensible career goals.
While I found a great, salaried position, I still borrowed well more than 1.5 times my year’s salary. My payments are manageable because of painfully long repayment terms, because my parents pay some of my bills, because we found an insane deal on an apartment, because I was lucky enough to graduate into last May’s economy instead of this May’s, because I have at my disposal the job market of a high cost-of-living area–but mostly because they have to be. I have no choice but to make it work, and ought to feel lucky that I manage to do so with comparative ease.
I don’t feel very lucky–I feel unsafe. Yes, there is an extent to which my problems with my budget are about not being able to afford yoga classes and new dresses, but what I would really love to be able to do is save more for emergencies, irregular expenses and the future. Right now, I can’t invest in my future because I am too busy buying it back from Sallie Mae and the Department of Education.
It isn’t even like I’m living with a mistake, either–right now, that’s the way the world works, and I don’t think my debt was the wrong choice. I’m just trying to figure out how to deal with it. If I don’t get some of that debt eradicated, or get my minimum payments down, or make some sort of headway, I’m going to go insane.
At first, I thought that since it’s such a feat simply to make the minimums, the best prepayment plan would be to pay a lump sum from my irregular-expenses savings when I have it. I don’t think that’s going to work, though–besides that there are always more irregular expenses than you think there will be, my teeth have made me come to terms with the truth that it’s never going to feel like I have $1,500 extra to watch disappear. Definitely not a couple of times a year–or even every year.
So I sat down with the Bankrate calculators and figured out what I could do with extra payments each month. It turns out, a lot. Only, where will these extra payments come from?
That would be my savings. I can’t save more anytime in the foreseeable future unless, for a while, I save less.
My new plan is to put over half of what I currently save towards monthly debt prepayments. That will make my savings small enough that they’re more about keeping in the habit of saving than actually accruing money, but it should also make enough of a dent in my loans that it will change my cash flow after not too much time.
This makes it more important that I put my energy into freelancing and writing–that side income is still tiny for me, but it’s my best shot for getting ahead in both savings and debt. It also has a bigger psychological payoff than rerunning my budget or finding places to scrimp, and this is really all about helping myself sleep better.
So, the plans. They change. I am such a big planner, but sometimes I don’t know why I bother.
Have you tried putting your monthly financial plans in a spreadsheet?
Spreadsheets really help me grasp the situation.
I felt the SAME WAY and that was more than 20 years ago. I have a son who will be going off to college in a few years and anticipate he will be faced with the same situation when he graduates. Not knowing what your personal spending habits are, here are a few pointers. Basically, cut back! For instance, if you buy coffee out then make it at home. People who go to your favorite coffee chain twice/day, spend as much as $300/month on coffee. If you order in, try to do it less. If you eat out, try to do it less. Don’t use your credit cards when you don’t have to. Lastly, keep an ongoing dialogue with you finance company. Interest rates just came down again so there may be new options out there. Good luck! Julie for WOW!
I love prepaying loans. The way I think of it is as buying a bond of the interest rate of the loan and maturity of the length left on the loan itself. One psychological maneuver that may help after you make a few prepayments is to use a rate calculator to show you how much money you are saving over the last of the loans.
Are student loan rates really so burdensome? I gather you don’t have a mortgage, and it sounds like you are keeping zero balances on your credit cards. In general I recommend prepaying the highest rate loan first.
My favorite psychological maneuver, at least during the first half of a loan payback period, is to recalculate the date when the loan is paid off.
For example, if you can calculate how much of your current payment is going to principle (that’s the depressing part), then if you can pay that much extra, you’re cutting a month off the end of your loan (that’s the exciting part).
When I first got my mortgage, only $30 was going toward principle (more like $60 in today’s money). So paying off an extra $100/month meant cutting off over three months from the end of my loan.
I’m so glad that you posted about this! I’m still in my grace period, but I’d like those loans to disappear ASAP!
@AJ: ahahahahahahahahaha have I tried a spreadsheet? Might I, perhaps, have some kind of spreadsheet somewhere? Might I have a series of detailed spreadsheets leading back to sometime in 2002… (K, that’s a lie. The series is intermittent and only occasionally detailed. But yes, since entering the Big Girl World I’ve been tracking everything with our good friend Excel and it has been a lifesaver.)
@Julie: Yes, I’m DEFINITELY happier in the long term spending this extra money on prepayments than happy hours. (I think.)
@Larry: It isn’t the interest rates that’s so burdensome, it’s the tendency to have borrowed a shocking amount as the principal! But yes, I am paying down the higher rate, smaller balance private loan first. The federal loan is like a huge thundercloud in the distance, I prefer not to think about it.
@Debbie: Yeah, running those calculations was what made me decide to start prepaying in the first place. It IS pretty inspiring.
“This makes it more important that I put my energy into freelancing and writing–that side income is still tiny for me, but it’s my best shot for getting ahead in both savings and debt.”
Melissa: You’re smart to be thinking about alternative income streams. If you’re spending your time making money, then you can’t be spending money. You’ll get those loans paid off in no time!
Melissa –
Thanks for reminding me that I am graduating into a recession – with not as much debt as you did, but still, a significant chunk of change every month paying off my education.
Ever wonder, in retrospect, how much every class that you skipped cost you?
<3 Amy
P.S. Found you. Not creepy, at all. 😉 *hugs*
“That would be my savings. I can’t save more anytime in the foreseeable future unless, for a while, I save less.”
Keep in mind that while you are “saving less,” any additional payments are actually earning you income. Paying down that principal is an automatic return of ____% (insert student loan interest rate here)