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.
although you seem to have been taken back a bit with the new information you received about student debt in America I believe that if any couple could achieve elimination of debt it's you guys. Your still inspiring to learn from and keep posting great reads!
ReplyDeleteThanks for the encouragement :)
ReplyDelete