A few weeks ago, after writing about the Snowball Hybrid method of paying off our loans, the Art of Being Cheap author reached out to me. He wanted to know if I would be interested in a analysis of our student loan debt. What does the interest vs. principal snowball vs. hybrid method actually accomplish in terms of paying off our debt?
I sent over my loan numbers for his analysis. Please take a look at his write up on the Debt Snowball.
Okay so, have you had a chance to read his post??
No, STOP READING THIS and go read the article...
YES, well welcome back for my reaction :)
It was sobering to see the reality of 10 years of debt repayment laid out in this manner. I felt naive for imagining that we could become debt free in 5 years (which may still happen with an amazing increase in our income), and had to face the fact that we are looking at 7-10 years of a strict budget. My gut reaction was anger. I started to think about what I really wanted to accomplish and where I saw Nick and my life in ten years. Would we ever get there with this amount of debt?
NPR had a few timely stories over the past week on student loan debt and it opened a window for me into a larger look at how other individuals are handling the long term impact of their higher education bills. One story, "Many Millennials Expect To Spend Decades Paying For College," was a snap shot of three individual stories that seemed to represent a multitude of people I've met since leaving college. I've heard their student loan stories at work, in my family/friend circle, and in current college interns.
|Taken From: http://yobucko.com/wp-content/uploads/2012/06/student-loan-debt-statistics.png|
We all seem to have a student loan story and a reason why we are now in debt or for the lucky few not in debt. It has become part of who we are, whether we know it or not this debt is part of our life story, and impacts our future narrative; How we live and end the story is now up to us. Student loans are just like a mortgage now a days, something we learn to live with and work through.
The three speakers discussed how they have put future life decisions "on hold" until they are in a better financial situation, but they didn't expect to pay back their loans for another 5-30 years. Which makes me question, how long do you put life "on-hold" for student loan debt?
A staggering statistic from NPR's story "Paying Off Student Loans Puts A Dent in Wallets, and the Economy," stated that people with student loan debt now will have 60% less net-worth then peers without debt later in life. We are spending decades paying off student loans rather than investing, so our long-term net worth will not equate to those who can afford to buy a house sooner or invest in retirement at a higher percentage.
The Financial Aid and student loan programs were originally created to bring about equality in the higher education system to the middle and lower class; however, it does not seem to be working. The speaker in NPR's second story, William Elliott, agrees that Millennials with student loan debt are still better off in terms of net-worth then without a four year degree, but we are still not reaching our financial growth potential. Creating equality through student loans does not seem to be working.
We have instead created a vicious cycle of debt and repayment. If we have student loan payments we are not saving. So when it does come time to buy a car, we end up with a lower down payment, a higher loan, and most likely a higher interest rate due to the lack of a large down payment. We've now switched our student debt to auto debt. A cyclical patter...
Having all of this information at my fingertips this week was frustrating and invigorating at the same time. It is really challenging to hear that no matter how soon we pay off our loans we will still be unable to achieve the net-worth of our peers without student loan debt. Our generation is in for a very interesting future.
How will our generation mold this problem into actions?
Please feel free to share your student loan story in the comment section.