Real-life Financial Stories: Student Loan Debt

Student-loans-by-ageI’d like to introduce Erin Fleming McCloskey. Erin is just starting her career as a financial planner. She passed the CFP examination on the first try which is something to be proud of as the pass rate is about 63.5%.  Lucky for me, Erin is a paraplanner with my firm, Curtis Financial Planning, LLC.

Erin was born at the tail end of Generation X/beginning of the Millenials, a generation generally attributed with the following traits: highly-educated, tech-savvy, self-confident and ambitious. Unfortunately, this generation was also born at a time when costs of higher-education reached new heights. Just last week, the  Federal Reserve Bank of New York announced that outstanding student debt again topped $1 trillion in the fourth quarter of 2013, second only to the pool of debt behind mortgages.

Student loan debt has tripled in a decade, actually faster than medical costs or 500% since 1985.  Seven in 10 college seniors who graduated in 2012 had student loan debt, with an average of $29,400 for those with loans. The national share of seniors graduating with loans rose from 68 percent in 2008 to 71 percent in 2012, while their debt at graduation increased by an average of six percent per year.

This debt crisis not only greatly affects the quality of life of an entire generation, it has a huge impact on the economy as Millennials delay living on their own, buying cars and homes and starting families.

Erin has many of the traits that are attributed to her generation, and yes, she is paying off her student loan debt. Here is her story:

Q & A With Erin

Q: Where are you in the process of paying down your student loan debt?

A I graduated “undergrad” in 2002 and then “grad” school in 2007 and have only been paying my loans for the past 4 years due to deferring in those years of grad school or gap years of financial hardship.  

I went to a private university for undergrad and had financial aid (no scholarships for merit because everyone would have deserved them) and my parents did PLUS loans as well. I had no money from savings/529 plans/grandparents for college. I took loans for whatever I couldn’t cover from the maximum  financial aid package I had.

I owe $32,000 now on those loans (they grew for several years while I deferred payments and now I’m paying on them). For grad school, I went to a state school and only racked up $5000 in debt.

Q: Are you also contributing to a retirement plan (401(k), IRA)?

AI am married (file jointly) and we contribute to an IRA –> Roth rollover for me each year. (Income is too high to directly do a Roth contribution for me).

Q: How do you prioritize your long term savings and paying down student loans?

A: Fortunately I have money saved to pay my loans currently, and out of my husband’s salary, we save for retirement.  My goal is that by the time my saved money from my last job runs out, I will be earning enough to keep paying my loans down myself.

Q: Do you have private loans or government loans?

A: I have government loans and private loans.

Q: Did you consolidate your loans?

A: My loans are consolidated, and the interest is around 2.5%, so I am in no hurry to pay the balance ahead of schedule.

Q: Have your found a way to improve your student loan situation?

A: I did consolidate and I believe my current rate is the best I can get. I’ve had this rate for 5-6 years.

Q: Can you recommend any resources, apps, tools that have helped pay down loans?

A: Yes, studentloans.gov for advice and consolidating

Q:  To what extent are your student loans affecting your life and the decisions you’re making?

A: The first time I realized that the loans were real and I owed money was when I came back from my first year after college that I’d spent in service abroad. I didn’t realize I needed to start paying on the loans after the grace period and since I wasn’t having my mail forwarded across the globe, I missed out on the reminders. So, I came back with my credit score ruined for the next seven years. 

Fortunately, by the time I was married and trying to buy a home my record was clean again. Having loans to pay did also stop me from leaving the country to be a backpacker for TOO long at a time; always had to come back and pay my minimums.

I am fortunate that I don’t have to worry about paying them, since now I am married and can take advantage of the second income.  I think the real difference to me now is that we have a 2 year old and we’ve already started saving for her college because I don’t want her to be in the same boat as I am with owing so much.

I’m also going to take advantage of technological/educational advances by the time she is out of high school and do a real cost/benefit analysis and see what education she can do virtually and for free.

I am sure that my education and life experience were worth the cost, but I do want to do my best to assure the investment will be worth it for my daughter and make sure she has good advice and career counseling when the time comes.

Q: When you are done paying off your student loans, what will you do with that freed up cash?

A: Probably give some to my daughter during her starting-out years, and otherwise use it to max-out retirement savings if needed and after that, PLANE TICKETS!

Q: If you could start over, would you choose the same education and loans?
A: Absolutely! My college experience was totally worth what I’m paying for now. I just wish I’d not made the mistake with missing out on my first 8 payments or so.

If you are interested in learning more about how you can tackle your student loan debt, join GoGirl Finance, Bicycle Financial and me for a twitter chat on February 26 at 5:30 PST, 8:30 EST. Use the hashtag #SavingsChat and join the discussion. More details can be found here: #SavingsChat: Managing Student Loans and Saving.

 Additional articles of interest:

From CNBC:   Repayment Strategies for Your Student Loans

From The New Republic:  When Millenials Can’t Move Out of Their Parents’ Basements the Entire Economy Suffers

From US News Personal Finance: Should You Consolidate Your Student Loan Debt? 

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