Student Loans

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Brother, you seem to have made a decent plan. I don't mean to rip on you, because at least you've thought some of this stuff out.

Some things though:

1) Don't consider buying a home as an investment if you own it less than 5 years. Some people got lucky and bought a home right before a big boom and then sold it 4 years later for a big profit, but that's just luck and perfect timing. Don't plan on that happening. In 3-4 years, your house could go up, stay stagnant, or go down. ALSO, if YOUR house goes up in value then all the other houses in the area that you might want to buy have gone up too, so if you gain some equity, it's really a wash because when you buy the next house, it's just that much more expensive. My advice -- don't think of a house as an investment, other than it's a place to eventually pay off so that you have cheap housing guaranteed. What a hassle too to have to sell the thing in 48 months. Damn! Think about that. In 48 months you will be going through the hassle (and expense) of selling it. Moving will cost more as you'll have more stuff, you'll have to pay a realtor fee, you're taking a chance that the value has lost. Bad, bad idea. Personally I would never buy a house unless I planned to stay at least 15 years in it. I know plans change, but you should PLAN to be in the house for 15 years minimum before you buy.

2) I was technically debt free by age 30 (except for the house). How? Through scholarship and working while in college and graduate school, my wife and I had just a grand total of $25,000 in student loans (granted this was early 90s when we started with this debt). For the first 7 years of our marriage we invested half our income, made double payments and even more on any debt we had, and we lived in one-bedroom apartments and owned two beater cars that we paid for with cash. In 1989 I was making $19,000 a year and my wife made $15,500 a year stipend as a graduate student, so just $34,500 a year (oh yeah, and a couple thousand a year extra as a musician). That amount went up from there every year for 7 years when she became a stay at home mom with our first kid.

3) In 1995 I bought a NEW car for about $12,000 (the Saturn SL1 I still drive today). Financed it though with a super low rate. Ugh. Never again. We had a ton in retirement savings then already (I was 29 then) but not a lot in the way of liquid cash (though enough to pay for that Saturn with cash if I wanted to). I opted not to as we had moved to the expensive Washington DC area and I wanted cash on hand.

4) In 2000 I bought another NEW vehicle. Ford Windstar for $19,000. I will NOT do that again. I actually had the money to pay straight up cash for it, but I decided to keep that money in the mutual fund and just pay the monthly payment for the van. Overall I did better with the money in the mutual fund, but if I had to do it again, I'd probably pay cash for the van and just have more to invest or whatever.

5) I had no credit card debt or student loan debt by age 30, and while I chose to make payments on two different new cars (something I will not do again), I had enough to cover them if I wanted to pay flat out for them, so technically debt free except for the house.

So, now at age 41 I am more than technically debt free, I have no outstanding debts to anyone other than my mortgage company, and I'm working on getting rid of that -- hopefully in just 5 more years unless something changes. The fact that I've been contributing heavily to retirement accounts since age 23 has provided a decent amount for retirement. I'm glad I did it.

Main ways I did this -- cheap housing for first 7 years of marriage. Cheap cars (USED 1987 Nova and USED 1986 Buick Skyhawk) that we paid for with cash. Not ONE big vacation until I was 29. Then we went to The Bahamas for a big vacation before our first child was born. No cable television, packed lunch for work except for twice a month, didn't needlessly spend too much. I didn't buy my first house until I was 33. Took an extra job as a computer instructor for a couple years to help with cash flow when we needed it.

If I had to do it again, I would not have put such a large percentage into retirement accounts that I couldn't get to those first 7 years, but because I DID do that, my retirement is pretty well set. It also forced me to always be working whereas if I had some money that was more liquid, I may have used that instead of working. So, in the long run it's worked out, but I kind of got lucky that I didn't have to go into debt to help with cash flow (other than one short period of time that I quickly cleaned up).

Rules to live by:

1) A credit card balance does NOT have to be a way of life.

2) A car payment does NOT have to be a way of life.

3) You don't NEED to have cable television or an expensive cell phone plan or the fastest internet connection on the planet or every little gadget that comes along.

4) You don't need to eat out frequently.

5) You don't NEED to be buying a house (don't tell yourself that you're a home owner until you OWN it). Should be a goal, but only when you can afford to do it.

You are actually in a better position than I was. You've got potentiall better income relative to today than I did then, and you've got a wife who will earn decent money after not as long a period of time in graduate school as my wife was (she did 4 years graduate school at Stanford and then another 2 graduate school at University of Michigan). You do have a decent amount of student loan debt, but dude, you will be paying that off in 10 years anyway right? Just add a couple hundred dollars extra to the principle each month and get it GONE as soon as possible. Whittle it down while your wife is still in school, and then when she's out and making money, instead of celebrating with buying new cars for you both, attack that debt and get it gone by age 28 or so

So far, a lot of good advice. I'd encourage you to follow most of it. What I really think this highlights, however, is the problem in higher eduction today: astronomical college costs. Admittedlt, this couple with poor financial planning by many younger age men and women (credit card debt, c'mon). According to citibank's (one of the nation's largest student lenders) student loans website, unless a student had an income above $18,000 per year, said student must have a co-sighner when applying for a private student loan. What full-time college student has a part-time job that pays over $18,000 per year.

At 7.3% interest, the decision is easy - paying off that loan is the first and best investment you can make. Show me another vehicle where you can make a guaranteed 7.3% interest rate and I will take it. You have to look at a loan rate like it is the rate on an investment. Now if your rate was like 1-2%, that is like free money, I'd take my time paying that off because I know I could beat that easily by investing the money elsewhere.

As others have noted, you can rent the same condo for less, esp. if you factor in all the other costs. On the car, I'd only buy new if I could get a free money deal on the financing. A $15K new car is still a lousy car. You will be happier with a 7 year old Acura or Lexus than you would be with a new Kia. Or you should be.

Thanks for the advice everyone. It's greatly appreciated

what ARE all these student loans, don't they GIVE you

money cos you're a bright kid any more. If i'd had to borrow money to go to college i wouldn't have gone.

Can't quite understand all this early life debt.A combined 90K debt for a couple of kids is madness,it's also a way of enslaving you and making sure you toe the line. I can safely say that my wife and i have never ever had more than

40000 dollars of debt. We've a nice house, 2 cars and a

mountain cabin.

vandergraafgenerator wrote:

what ARE all these student loans, don't they GIVE you

money cos you're a bright kid any more. If i'd had to borrow money to go to college i wouldn't have gone.

Can't quite understand all this early life debt.A combined 90K debt for a couple of kids is madness,it's also a way of enslaving you and making sure you toe the line. I can safely say that my wife and i have never ever had more than

40000 dollars of debt. We've a nice house, 2 cars and a

mountain cabin.

Interesting. The student loan debt my wife and I had was $7,500 for me for 4 years of college (I paid for graduate school with cash and for most of my undergraduate school after the scholarship I received), and then my wife had $17,500, and that was for ONE year in graduate school. She got a full ride (academic scholarship) for undergraduate school and then full ride plus $15,500 stipend a year for 4 years of graduate school at Stanford. Then, she got another graduate degree from University of Michigan. We took out a loan for the first year ($17,500). The second year she was a TA and she took the money from that and paid for that second year. So, not bad for her really.

Back to your statement though, was the $40,000 in debt on the house or on stuff other than the house? Hopefully it's onthe house, because if you got through school with no student loan debt, then you should NEVER be in debt except for the house unless there is some huge emergency (hopefully it wasn't that). I fthe debt is or was simply consumer debt, then you haven't done well in my book. No need to answer, and I don't really care. But, not really a nice thing to bash people for some student loan debt. They'll work on it. One of two things that are acceptable things to go into debt on -- the other being a house (no SECOND MORTGAGE, and a 15-year fixed loan is preferrable).

While $90,000 seems like a lot, two college educated people with NO kids making professional money can get that gone in 5 years or less if they want. It's hardly madness. Setting oneself up for a rich retirement can start at 30 (better if earlier), so clean up those debts by 30 and then invest, invest, invest.

woah there Neddy. Your student loans are generating 6570

dollars a year interest. Even if you pay them off over 15 years that's 6000 a year, so we're already at 12570 dollars

repayments on a salary of 38K with 2 people to feed, cloth and house??

You're making a bit over 3K a month, but you've already got 1050 dollars out of that gone to service those SL's.

The car 15 K at 6 or 7 % over what 3/4 years will take about another 350 off of your disposable income, so you're already down to abouit 1600 a month, without taxes or whatever.So if you're going to pay 110K for a condo taking up another 900 then you're down to 700 a month for everything else, utilities, food,gas, whatever. I say to you either you're making it all up or you're on the road to ruin.

yes it was for the house of course. I'd some money saved up from my time with the British Army (i went in as a graduate officer ) and in the foreign legion. My wife was at that time a French canadian teacher.We bought in Quebec for about 300K of which we paid 260K up front. We've 2 kids , they're at college, one in france and the other in the US, we give them money to get by, they will never ever

have to borrow to get through college. That's a parent's job, if you can't assume your responsabilites don't have kids.......

vandergraafgenerator wrote:

yes it was for the house of course. I'd some money saved up from my time with the British Army (i went in as a graduate officer ) and in the foreign legion. My wife was at that time a French canadian teacher.We bought in Quebec for about 300K of which we paid 260K up front. We've 2 kids , they're at college, one in france and the other in the US, we give them money to get by, they will never ever

have to borrow to get through college. That's a parent's job, if you can't assume your responsabilites don't have kids.......

Well, while I will certainly help my kids with college, I disagree completely that it is a parent's job to pay for it. Any kid who expects that is a spoiled brat. I worked my ass off in high school and then in college both from a monetary standpoint and as a student so that with scholarships, just $7,500 in student loans, and the money I earned, I paid for about 90% of the total cost of undergraduate school (and then 100% of graduate school). My children will be required to do something similar...jobs in high school (and maybe even earlier), jobs when they can while in college, scholarships and possibly student loans. No one says they need to graduate in 4 years either -- maybe it's 5 or 6 while working to pay for it. Doesn't mean I won't have the money to pay for college for them, because I will, even to the most expensive colleges in North America (as I will have the house paid off and both of us working by then, and they have some small accounts that will help pay for part of it).

Both of my kids WILL go to college, and my wife and I WILL pay for a portion of it, but in order for a kid to truly understand the value of working to pay for something they want, they WILL be required to pay for a decent portion of their school themselves either by scholarship or savings or working or lengthening the time they're in school or by taking out student loans.

No matter the way a kid goes to college, EVEN IF THE PARENT DECIDES TO PAY FOR 100% OF IT, they are not ENTITLED to be sent to school by the parents. Some GREAT parents decide not to pay a penny for college, and some really bad parents pay for all of it. It is simply NOT a measure of good parenting at all.

"Not ONE big vacation until I was 29. Then we went to The Bahamas for a big vacation before our first child was born. No cable television, packed lunch for work except for twice a month, Took an extra job as a computer instructor for a couple years to help with cash flow when we needed it."

I'm all for being resposible, but jesus chist man, you know you only get about 80 years on earth right? and you'll only be young once?...just checking..

logical thinker guy wrote:

"Not ONE big vacation until I was 29. Then we went to The Bahamas for a big vacation before our first child was born. No cable television, packed lunch for work except for twice a month, Took an extra job as a computer instructor for a couple years to help with cash flow when we needed it."

I'm all for being resposible, but jesus chist man, you know you only get about 80 years on earth right? and you'll only be young once?...just checking..

Yep. Well, I got married at 23. My wife was in graduate school for the next 6 years. We just didn't have a ton of money. Besides, I didn't say we didn't take vacations. We just didn't take BIG EXPENSIVE ones. We lived in the San Francisco Bay area and we would go to Monterey or the city frequently or even down to Santa Barbara. Never far from mountains or beach. We've taken one or two vacations a year now ever since my oldest kid was about 2.

I still don't eat out a lot (I'm a great cook actually and can make most anything taste pretty good, and it's healthier too). Regarding cable television, we've saved about $35 a month for 16 years (had cable for a couple years there). That's $6,720! Damn brother! There were lean years in there when spending that kind of money for cable just wasn't a good idea. Now that we're well on our way though, we're considering getting cable television for Christmas with a nice High Definition television to go along with it. BUT, I'm 41 years old now, and I've been saving and investing and living well within my means so that by now I can begin to spend a little, and oddly enough broadcast television now has stuff on it that is as inapporpriate for young kids as basic cable is (Family Guy is NOT for kids). I still will keep driving my 1995 Saturn until it can't be driven any more though and continue putting 20% or more away for retirement.

It's all about priorities. Do you want to be deeply in debt by age 40 with a few vacations behind you and new cars that depreciate every second and years of cable television payments down the drain, or do you want to be 40 with no debt, a liquid emergency fund of 6 months of expenses, tons of money in retirement accounts and no financial worries? Being frugal BEFORE age 30 has allowed my family and me to take vacations all over the United States since (often two a year) and pay for them with cash, and have enough cash to buy what we want when we want it without having to worry about maxing out a credit card (because we don't carry a balance) or paying some interest for some payment plan of some sort.

You say I have about 80 years to live (hopefully a little more), and you're right, but brother, I'm retiring at 59 1/2 and then never working again; in fact, if things go well, I may retire at 55. If I didn't invest heavily, I'd probably have to work to 67 or even longer. No thanks. A little sacrifice goes a LONG way. The short life span is precisely why I've invested so much. Will be time to travel and so on when retirement comes. Looking forward to it, and of course, because I don't owe money to any debtors (other than for my modest house) I have more spendable money NOW than many who make way more than I do, so I'll travel and spend money now too while my invested money works for me every second of the day.

i see where you're coming from, and i'm pretty much of the same mind - i drive a 12 year old car, live in a modest apartment, watch an old tv, etc, etc. I'm not a hugely materialistic person. I was mostly talking about the vactions part. When it comes to life experiences I try to be pretty liberal - see live music whenver i can, travel a lot, meet new people, go out and be social..

I just think that at some point when you put off life all the time it passes you by. i'd rather be retiring at 67 and have a memory full of awesome adventures throughout the years than retire at 55 and jerk off while looking at my account balance. even if you get that extra 10 years of retirement, you're in your 50s and 60s..there are certain things that you can do in your 20's and 30's that you just can't in you later years. Besides, there's not even a guarantee we'll make it that far.

"If we are ever to enjoy life, now is the time, not tomorrow or next year... Today should always be our most wonderful day." ~Thomas Dreier

i see where you're coming from, and i'm pretty much of the same mind - i drive a 12 year old car, live in a modest apartment, watch an old tv, etc, etc. I'm not a hugely materialistic person. I was mostly talking about the vactions part. When it comes to life experiences I try to be pretty liberal - see live music whenver i can, travel a lot, meet new people, go out and be social..

I just think that at some point when you put off life all the time it passes you by. i'd rather be retiring at 67 and have a memory full of awesome adventures throughout the years than retire at 55 and jerk off while looking at my account balance. even if you get that extra 10 years of retirement, you're in your 50s and 60s..there are certain things that you can do in your 20's and 30's that you just can't in you later years. Besides, there's not even a guarantee we'll make it that far.

"If we are ever to enjoy life, now is the time, not tomorrow or next year... Today should always be our most wonderful day." ~Thomas Dreier

got me! those are both mine

Without a doubt, max out your 401K. It's not even an option not to. You have 37 years until retirement. If you wait 5 years to invest, you actually give up roughly 30% of the final total. Compounding gets huge in the later years (large balance) and you're giving up the large dollar later years, if you start later. EASILY much more than letting any debt drag longer.

Check it out yourself:

http://www.mycalculators.com/ca/401kcalcm.html

So get this. So apparently Bush recently signed a bill that says if you work for the goverment, they will wipe away any unppaid student loans after 10 years working in the goverment. Anyone heard anything about this?