Archive for the ‘Money, Jobs, & Finances’ Category
Decisions, Decisions – Retire Student Loans Forever Or Increase Down Payment?
April 15th, 2013 | Added to Money, Jobs, & Finances, Student Loans | No Comments »
Ah… the more things change, the more they miraculously manage to stay the same. Just a few days ago I posted an “update” on my student loan repayment progress. In that update, I noted that there really wasn’t an update to provide because I haven’t been making excess payments to the USED / MOHELA. No excess payments = no major principal balance drops to write about on the blog. It’s a pretty simple equation, right?
The update from the other day was based on the premise that my roommate was leaving to take a job in another state and that I needed to find a new place to live. That update also noted that I’ve been holding back the excessive additional student loan payments so I can use those funds to purchase a home in the next few weeks.
Could this all be over soon?
Well, like the opening line of this entry states – the more things change, the more they stay the same.
It turns out that the organization that was going to hire my roommate has decided to cancel all hirings for the time being. The next possible time that they’ll be bringing in new hires is this October… maybe. This is another topic entirely, but I’ve been telling my roommate for a few years that he needs to diversify his career prospects. He’s in the process of doing so right now, but let’s not digress from the purpose of this entry.
With the change in my roommate’s career switch I’ve been presented with a unique opportunity. Clearly, I’m going to push back my plans to purchase a home for a few more months. It just makes sense to rent the townhouse that I’m in through at least October, if not through next spring (I would stay through next spring in the event that my roommate doesn’t make/isn’t offered the career change in October). The unique opportunity that I now find myself in is that through saving to increase the size of my down payment, I’ve been able to put away more than the $17 thousand that I need to eliminate the remaining balance of my student loans. Most folks would make the quick decision that since I’ll be staying in my rental for a few more months, if not longer, then I should some of these funds that I’ve saved up to retire the student loan debt once and for all.
After all the aggravation that I’ve been through with my student loans, that’s an extremely appealing option!
However, as a guy who tries to be reasonable and thoughtful on issues of money and personal finance I can’t help but think that I should just save this money and use it to increase the amount of my down payment when I do eventually purchase a home. Retire the remaining balance of my student loan debt or keep hording money for an eventual down payment? It’s an interesting dilemma to consider.
Trust me, I’ve been giving this issue some deep consideration.
I think the benefits of saving the money for a future down payment are obvious. The total amount of the mortgage is reduced and since I didn’t plan on putting 20% down for the new home, by increasing my eventual down payment I’ll be able to put down 20% and avoid having to pay private mortgage insurance. Further, the more you put down, the better rate you can demand (even in a world of low rates). As a guy with near-perfect credit, increasing the amount of my down payment would be an ideal use of these funds.
And yet… I can’t shake the idea from my head that if I decide to use these funds to retire my loans, then I’m literally about two weeks away from having absolutely no student loan debt, period. Gone. Done. Eliminated. Game over.
The benefit of repaying my student loan debt? In financial terms I’d be retiring debt that is currently accruing interest at 4.25% and (when I purchase a home) replacing it with a mortgage at a lower interest rate. That’s good for my financial health over the long-term. The bigger benefit to retiring my student loans, though, isn’t something that you can easily quantify. The bigger benefit is the combination of financial freedom and the incredible feeling of accomplishment that comes with repaying such an immense amount of debt. The benefits of saving this money aside, I just can’t shake the idea of how awesome it would feel to know that I repaid $121 thousand in student loan principal and another $30 something thousand in interest in under 7 years.
For those of you who are analyzing whether or not I would suffer from using $17 thousand to retire my student loans, here’s some information for you. If I wait until November or December to buy a home, I can pretty much replace that entire $17 thousand with new income from the summer months. In essence, I’d net out even and wind up in a state of stasis, but with one less bill each month. My minimum student loan repayment is $333.50 per month – so that amount would be put towards my future down payment, too.
What to do… decision, decisions… What do you think? If you were in this situation – what would you do?
The Very Definition of Being So Close And Yet So Far Away!
April 4th, 2013 | Added to Money, Jobs, & Finances, Student Loans | No Comments »
Long-time readers of my blog know that I usually post a monthly update on my student loan repayment progress. The last such update was posted back in January and it was pretty well-received by the readers. Thanks for that, everyone! Since January, I haven’t posted any updates about my repayment progress. There’s a good reason for the lack of updates, though: there hasn’t been much progress since January. Shocking for a guy who has managed to repay so much in such a short period of time, right? Well, here’s the story…
I’ve paid SO much more than this in student loans over the last six and a half years!
Sometime towards the end of January/early February, my roommate told me that he finally received a call back for a job that he’s been waiting to hear from for several years. He said that if he passed the different qualification rounds (he did and there was never a question on whether he would) and the agency offered him a position (which was and remains likely), then he would have to move out at some point in the middle of May.
Just like any sane person, I reacted to this news by weighing my future housing options. Through this process, I realized very quickly that my options for selecting a living situation in 2013 are much different than they were 5 or 10 years ago. Today, I don’t really need a roommate to pay for the too-high rent required for the three bedroom, two and a half bath townhouse that I currently live in. However, only having to pay half of the rent and half of the utilities obviously makes my financial life easier and I can’t complain about the roommates that I’ve had over the years – they’ve all been great with paying their share of the costs. And they’ve been good guys, too.
However, I’ve gotten a bit older and what I’ll accept for living space today is different than what I would have accepted 5 or 10 years ago. For example, I could very easily continue life as a renter and move into a less expensive condo or apartment that is much closer to the beaches and the bars that I go to (on those rare occasions when I actually go out to the beach or bar). But not only would continuing to be a single renter be a poor use of my income, living in those areas is not really where I want to be at this point in my life. Granted, “those areas” are only minutes from where I live now, but as a guy with an aggravating commute I’d rather be as close to the main highways as possible. The area that I live in right now is less than a mile from the Garden State Parkway and less than 5 minutes to other major highways in the area. It’s nice to have that type of access to main highways.
I’ve quickly gotten off topic here. The point of this entry is to provide a brief student loan update! I’m in an awkward position right now with my students loans. For the first time in years, I haven’t made any extra, excessive payments to the USED / MOHELA loan because I’ve been saving my money to buy a new home. Of course, as you might imagine there are two aggravating items that I have to report on about this situation.
First, I have $17 thousand still outstanding on my student loans. What is aggravating about the outstanding balance is that I have the entire amount (and then some) sitting in a savings account right now. Why not use the money in the savings account to pay off the balance of the loans, you ask? Simple. I’m saving those funds to buy a house. Just like the detour I had to take last year when my Honda Civic crapped out and I bought a brand new Ford Escape, I’ve been presented with a situation that requires me to change my financial goals.
Second, between principal payments and interest over the last nearly 7 years that I’ve been repaying my students loans, I’ve given private entities like NJHESAA and MOHELA and government agencies like the USED some $104 thousand in principal payments and some $35 thousand in interest payments for a combined nearly $140 thousand no longer in my possession. Just to give you a perspective on how that type of repayment has had a lasting, real impact on my life – the $140 thousand from the repayment could have easily combined with the $17 thousand that I’m sitting on to allow me to buy the condo that I’m considering purchasing – with absolutely no mortgage.
Of course, that’s not the situation that I’m in and that’s not the way my financial life has progressed. And I’m not mad… Am I aggravated about it all sometimes? Yes. But definitely not mad. In fact, I’m grateful that I’ve been able to position myself such that I can buy a home at 32 years old when there are so many people in my generation that just aren’t able to do so yet. And the path that I’ve taken to get here will allow me to decorate the walls in my soon-to-exist-home-office with various degrees and professional commendations. Not such a bad outcome, really. Does buying a home mean that my plan to retire my student loan debt by this summer is going to change? Yes. Unfortunately, I’m going to have to push that repayment plan out a little bit longer. But pushing the repayment plan out a little bit longer because I’m buying a home isn’t so bad!
So instead of reading about how I retired my student loan debt in the summer of 2013 you’re probably going to have to wait a few extra months – possibly a full year – to read that update. In any event… stay tuned!
How Much Does It Cost To Buy Happiness? Does $75,000 Per Year Work?
March 29th, 2013 | Added to Money, Jobs, & Finances | No Comments »
For those of you who have been reading my student loan updates, you may remember the entry linked above with its tired, exhausted tone throughout the update. My aggressive student loan repayment was – and continues to be – the right path to financial freedom. The truth, though, is that this repayment schedule is tiring and taxing on my wallet. But does it impact my overall happiness and well-being? I don’t think so, but let’s see what the folks at Princeton University have to say about it!
The folks at Princeton have an interesting study about money and perceived happiness.
An August 2010 study by Princeton University suggests that the more money you make, the happier you are… until you make $75,000 per year. According to the study, $75,000 is the magic number where a person’s annual salary maximizes personal happiness. Any money earned over $75,000 doesn’t significantly add to a person’s evaluation of their life. The study also suggests that when you make less money, then issues like poor health, divorce, and loneliness are amplified. In other words, if you can make $75,000 per year, then you just might be able to buy yourself into being satisfied with your life.
From my personal experience with sinking so much money into repaying my student loans, I don’t know if I’m a good example of the results from the Princeton study. Sure, my income is at or above the $75,000 mark (forgive me for trying to express some modesty with my income here, folks), but I wonder if the Princeton group analyzed what the impact is of significant levels of debt on the happiness or perceived happiness of individuals. On the one hand, I’m a happy guy with not many complaints so I think I already fit well into any happiness measures. On the other hand, though, even with my current income I’m constantly trying to find ways to earn more money so I can retire more debt.
In light of my own experiences, I would suggest that there might be an addendum that we can include with the Princeton study. That addendum would say that while making $75,000 per year is the apex of integrating money earned with impressions of happiness, there is a correlation between exhaustion and high levels of debt – regardless of how much money one makes.
All of this really begs the question, though, on what you think of the results of the Princeton study. Do you think $75,000 is enough of an annual salary to buy happiness? Or, as the Princeton folks write it, is $75,000 in annual income enough for you to feel satisfied with where your life is right now?
I don’t know – I wonder what other people think about this conclusion. It seems to me that $75,000 might be a lot of money in some parts of this country, but not necessarily so in other parts. Also, if you have extreme amounts of debt, then how much of that $75,000 is actually being used to enhance those factors in your life that would leave to an improved self-image? Or improved happiness? And is there a level of debt where the money you owe is small enough that it doesn’t necessarily impact your happiness any more? Interesting questions…
One Debt At A Time
December 5th, 2012 | Added to Money, Jobs, & Finances | No Comments »
Eliminating debt in an economy of recession does not have to be an impossible task. With careful planning and smart money management, anyone can eliminate their debt one piece at a time no matter the size. Below are a few tips that you can use to get rid of the debt that is holding you back from financial freedom.
One – Cut up all of your retail credit cards.
Retail credit cards are credit cards that can only be used at certain stores. They have no value outside of that store and serve only to facilitate spending money in that store. These cards should be completely eliminated from your budget if you are trying to eliminate debt. If you have debt on many different fronts, this is the debt that you should eliminate first.
Two – Limit the use of your credit cards to emergency funds.
It is very difficult to get out of debt if you constantly use credit cards. Credit cards should be relegated to emergency use only. Take them out of your wallet and place them in a locked cabinet that is difficult to get to.
Three – Use the snowball method.
Psychology plays just as important a role in paying off debt as any other purely physical financial aspect. The snowball method consists of starting with the lowest debt, paying that off and then moving to the next highest debt. This will give you a sense of accomplishment in knowing that you have completely paid off one of your debts before moving onto the next one. It will also improve your organization because you will not be receiving a bill from so many creditors.
Four – Look for better rates on your insurance packages.
Many people believe that their insurance rates on large assets such as cars and houses are completely nonnegotiable. However, people have access to resources that were not available in the past because of the Internet. It is actually quite easy to find insurance comparison websites whose sole purpose is to compare insurance rates side-by-side. Using resources like this will direct you towards money-saving options for your insurance packages.
Five – Do not be afraid to use loan consolidation.
If your financial situation is quickly becoming untenable, debt consolidation is one of the best solutions outside of bankruptcy. Contrary to popular belief, simply taking on consolidated loan does not lower your credit score automatically. As a matter of fact, it can actually raise your credit score if you are able to keep up with those payments.
Six – Refinance if at all possible.
Now is a great time to refinance your home at a low interest rate. The Federal Reserve continues to keep interest rates at historic lows, and if you can take advantage of this to save more money to put toward debt, you should do it. Keep in mind that refinancing does require a substantial upfront payment in most cases. However, this is a good investment for people who are trying to get out of debt.
Seven – Cut down on impulse buys.
Although you may not believe that impulse buying can actually affect your debt, small purchases add up over time. You can eliminate impulse buying from your shopping habits by creating a list before you go out to shop and sticking to it.
Eight – Always be on the lookout for coupons.
Although the newspaper is fast losing relevance as the premier source of news, it is still one of the best places to go if you are looking for coupons for local retail stores. The Sunday newspaper in most towns is a great investment if you’re trying to get out of debt.
Also, many retailers will offer great deals online that are not available off-line. There are also websites whose sole purpose is to partner with retail stores and offer coupons – be on the lookout for them.
Brent Wayne is a 23 years old housing and finance writer. He mostly spends his time writing blog posts and editorials with a focus on housing, mortgage loans and economy. You could reach him at firstname.lastname@example.org.
Where, Exactly, Did All of That Student Loan Money Go?
October 5th, 2012 | Added to Money, Jobs, & Finances, Student Loans | No Comments »
You would probably be amazed how many times there are thoughts that I have in my head that I know I want to translate into entries on this blog, but never have the time (or memory) to get down on paper (or the electronic equivalent). That’s probably why I usually have so many half-finished entries in the “Drafts” folder of this blog – because I’ll start writing an entry and then not finish it in a timely manner since the thought that would finish the entry comes too late or when I’m not near a computer. For example, a few months ago I wrote about what I would have done with all of the money that I spent on student loans if I didn’t have to send it off to the loan companies and the government. Well, in the week since I wrote that entry I realized that I forgot to add a small addendum at the end of the post talking about where all of that money went.
And thus we have this entry.
Like the title of this entry says – where, exactly, did all of that student loan money go? There are a few ways to answer this question so I’m going to compartmentalize the response as best as I can. To answer this question one first has to understand that the money that I paid in student loans has been sent to four primary lenders: Monmouth University (MU), CitiBank, the New Jersey Higher Education Student Assistance Authority (NJHESAA), and the United States Department of Education (USED). With respect to the USED, the Department recently sold my loan to the Missouri Higher Education Loan Authority (MOHELA), so when I write about them I’ll reference MOHELA.
Monmouth University – Perkins Loan
This is the easiest one for me to discuss. Many years ago when I was an undergraduate attending MU I received a Perkins loan from the university. Perkins loans are provided by the government and can be offered from the university to help finance the cost of education. The university advanced a $1,400 Perkins loan which I repaid very soon after graduating in May 2003 (I can’t remember the date, but it was within the first 12 months of graduating; possibly within the first 3 – 6 months).
Where did that student loan money go? Well, the Perkins loan program is arranged to be a revolving loan fund at each university, so the money I repaid to MU was ultimately used to provide loans to other eligible students. And that’s not such a bad outcome for repaying this small student loan.
CitiBank – CitiAssist Graduate Loan
This was a private student loan that I took out from CitiBank while I was attending the Bloustein School of Planning and Public Policy at Rutgers University. In truth, I didn’t use all of these funds for tuition expenses. As I recall, I used the majority of these funds to pay for one semester of graduate classes at Rutgers and then used the balance to pay some living expenses as well as to purchase some textbooks.
Where did this student loan money go after I repaid it? This one is simple – the loan was a private loan fully-backed by the federal government so a full one hundred percent of the funds were returned to CitiBank. That includes the full $7,000 that I paid in principal as well as the $1,071.52 that I paid in interest. All of that interest money is profit to CitiBank that probably went towards paying someone’s salary or other forms of compensation (i.e. bonuses). Congratulations, CitiBank – you achieved a 15.3% return on your investment in me!
New Jersey Higher Education Student Assistance Authority (NJHESAA) – NJCLASS Loans
Is there anyone else out there on the internet who has blogged more about the NJHESAA organization than I have on this blog? I know that there are thousands of similar-minded current and former borrowers out there who are frustrated with the way that this organization treats its clients. To be fair, though, I haven’t been a client of this group for a few years now and I hope that they have learned from having their terrible customer service reported around the internet. In any event, I covered my relationship with this group quite a bit on this blog, not the least of which was a post I created on my final payment to the company, which you can read by clicking here.
With respect to where that student loan money went, it broke out as $40,095 repaid in student loan principal, $24,251.61 paid in interest, and $1,893.69 paid in fees. That’s a total of $66,240.30. The interest and fees were all profit to the NJHESAA organization so they could have used that money for whatever they wanted. As I understand it, the principal for the NJCLASS loan program while I was utilizing it was generating from the sale of tax-exempt bonds. So, one would hope that the principal I paid to NJHESAA was used to repay their bond financing, but who knows? What I DO know is that NJHESAA not only made all of its principal back off of my loan, but it made a 65% gain from interest and fees (because, you know, I didn’t need that to buy a house or a car or anything).
United States Department of Education (USED) – Direct Loan
This one is interesting and it’s not a loan that I’m fully ready to discuss or breakout yet. Part of that reason is because the USED sold my loan to the Missouri Higher Education Loan Authority (MOHELA; the Missouri equivalent of NJHESAA). I didn’t ask for that loan to be sold, I didn’t want that loan to be sold, and I’m not happy that the loan was sold. I wanted to finish up repaying this loan to the organization that originally advanced it to me – the USED. However, I was repaying the loan so quickly that the USED considered me a strong investment and sold my loan to a private loan company. Wonderful.
My early figures show that I took out $57,575 in USED principal, capitalized some $1,445.15 in interest, and paid $205.04 in consolidation fees. Those numbers aren’t worth talking about, though, since I’ve paid an incredibly amount of interest since this loan started and that figure isn’t captured anywhere. Plus, this loan will ultimately have to be broken out between both the USED and MOHELA.
What a pain in the ass.
Anyway, there are some figures for you – where did my student loan money go? Well, the one thing that we know for sure is that it didn’t go towards building the economy and it mostly did not go towards helping other higher education students achieve their academic goals. What a wonderful waste of money and, more importantly to me, my time.