I do my best to cover a variety of topics here at Get Rich Slowly. Personal finance is a v-a-s-t topic, and there's a lot of specialized knowledge. But there's no question I have blind spots. Because Kris and I have no kids, I don't write much about children and money. Student loans are another blind spot for me.
Still, I know a lot of GRS readers have questions about student loans. You folks e-mail me all the time with questions I can't answer. But I finally realized that instead of ignoring your queries, I should put a few of them out for reader comment.
For example, Megan recently wrote looking for advice on coping with student-loan debt. Here's her story:
I got my degree from a small private university in Wisconsin, a school that I loved, but that in the end cost me $55,000 in student loans. That total (as I just calculated) is up to $63,630(!) because of interest since I graduated in 2008.
After taxes, I only make $1280 a month, and my loan payments total about $637 each month — almost 50% of my income! I can make the payments no problem, but it leaves very little money left over for savings, retirement, and even just fun money. A second job isn't very feasible since I'm in the military and I can get (and have been) called into work at a moment's notice.
Do you have any tips or advice on what I can do about my loan payments? Right now, the majority of my loans are on ten-year repayment plans, which I like since I don't want to be in debt forever. Consolidation would lower my payment, but nearly triple the interest I'll have to pay over the years, and would also increase my payment plan to 30 years. (I'd be 54 by the time I'd pay them off!)
Is there any other way to get through this that I just don't know about?
Again, I know very little about the ins-and-outs of student loans. Based on the information Megan provided, though, I agree that consolidating the loans probably isn't a good idea. I'd rather keep the ten-year term. (If she's disciplined, though, Megan could consolidate and then opt to make accelerated payments on her loans, much as Kris and I chose to do with our mortgage.)
In either case, part of the problem will fade with time. Some of this is a function of time. Megan will eventually take higher-paying jobs, and as her income increases, she'll be better able to handle her student loans. The $637 monthly payment that seems like a stretch on a $1280 monthly income will seem very manageable on $3000 a month or $5000 a month.
Until then, however, it's vital that she keep her other expenses in check. She should do what she can to avoid the “lifestyle inflation” that often comes with an increased salary. Instead of spending her raises, she should be especially diligent about using them to pay off the student loans, and to save for retirement.
Because I have no experience with student loands, I don't have any specific advice for Megan — just these general thoughts. Do you have advice for Megan? Is there anything she can do to decrease the drag her student loans place on her budget until she's able to earn more money? Are there any other student-loan tips or tricks you can share?