[Anonymous]

Not 100% sure this topic is right for this forum – but let me lay it out.

As aspiring, or already CPAs, we are required to get an education. Many of us even have more than 4 years, whether due to career changes or state mandated minimum education requirements to become licensed. Based on this, as well as how expensive an education is nowadays, it is a good bet that most of you, like me, have a negative net worth due to a large amount of debt.

Although partly myth – but mostly true in my experience – accountants are conservative, goal-oriented and can be frugal when they set their minds to it.

So, how did, or do, you deal with your student loans?

I am around two years out of school with around student loan debt in the $30’s. I am on a long payment plan (I think it is 25 years – I should know this!) and have a minimum payment of around 240/month – although I pay closer to $400/month. I recently moved to a nicer area closer to where I work (much more expensive), and purchased a really nice La-Z-Boy couch and am thinking of getting a big screen TV. BUT, I’ve started to feel guilty. Am I being irresponsible? Should I be living more frugally and try to triple my payments?

If I was smart, I’d live in a less convenient area and with roommates (likely chopping my rent in half but also adding to my commute). I’d stop buying shit that I don’t need (my little tv that I bought when I was 14 still works great – only 1 trip a year out of town to see my family would suffice). If I were smart, I’d live super frugally for the next 10 years of my life and put any salary increases towards my loan balance. But then again, I want to live, am easily able to pay all of my bills and save a little each month, and tend to think of student loan debt as good debt (vs. credit card debt, which I pay off completely every month). So although I do feel a little guilty, I’m not convinced I’m doing things wrong. Am I?

I am also curious on how you managed your debt after college.

[Anonymous]

It really depends on the interest rate you are paying on your loan. If it is less than what you could get from investing, then you should invest the extra amount instead. It's okay to get something nice for yourself every once in a while but when you do it too often it becomes a lifestyle which can get expensive. For me, I'm about as tight as it gets so this was never an issue for me.

[Anonymous]

Find a nice girl, ask her to marry you, and maybe she'll volunteer to pay off your loans since she hates debt just as much as you LOL, I am only so lucky.

You can always put more toward loans, so yeah I would put just about as much in as you can. I didn't even make monthly payments, I made payments out of each paycheck. Just get it done and you'll feel great about it.

[John Tucker]

Well, it depends upon how much you are bringing in for income. 25 years is a long time, even the Standard 10 year period is a good chunk of time as well, but you have to LIVE your life. I would make sure you have all of your monthly expenses and installment loans laid out, then most of your monies are going to those expenses and loans, with the other portion going to savings/retirement/rainy day.

For the student loans, I would seek to do a 10-15 year pay-off on the loans, continue to deduct the student loan interest on the taxes, and make sure that I'm progressing in my career to make more and more each year, every 3 years, every 5 years, etc. Doing this the loans should be paid off in the 10-15 year period if not before. What I wouldn't do is consolidate the student loans because you lose the ability to get the income based repayment restructures which are a great benefit should you get into a down turn, lose your job, are in between jobs, etc.

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[Iron_Victory]

Let me preface this with I believe student loans are a result of behavioral choices rather than mathematics. Thus the repayment “intensity” is also a behavioral choice and not a math problem.

Some people may argue that they didn't have a choice and needed to take students loans. I myself took out loans cause I thought it was the only way to pay for my education. DEAD WRONG!!!! There are plenty of options to pay for your school, jobs, scholarships, campus work, etc. but it all takes EFFORT. Since people tend to take the path of least resistance you see where I and many other people end up after graduation. Thus behavioral choices. I could have payed more up front. I could have tried to get scholarships. I could have gotten a part time job delivering pizza. I could have worked out a payment plan. I could have gotten more tuition reimbursement from my employer at the time. I just didn't do these things. Somehow I don't believe I was the only one either.

When It comes to paying it back now it seems like you are confronted with many issues. Like your Lazy boy couch or a big screen TV. Can you live with a little less couch and a little less TV? Sure you can. Do you want to? Probably not. Again we have behavioral choices impacting what we like to delude ourselves into thinking is a mathematical problem.

I would say accountants are the worst at this because of our work and the way we have been trained to think about debt from an amortization schedule approach. As well as the “benefits” of carrying the student loan debt. If you took what would be your interest payments and put them in an HSA or IRA you'd end up at the same place so its negligible.

My advise for you or anyone is pay it off as fast as you are able. If that means forgoing a vacation, big screen TV's, fancy couches or dinners out then so be it. We could all (mostly) agree that paying off a debt is a good thing that allows you more options.

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[tomq04]

mrmoneymustache.com

This is one of the most active and followed personal finance blogs around, he touches on much of what you said and will help “punch you in the face” to get some motivation to killing that debt! You won't regret it, living frugally is bad ass (as compared to living “cheaply” which is not). Read some of MMM and start living the good life, for less!

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[jeff]

I'm a big Dave Ramsey fan and went through his Financial Counselor training program in Nashville (30 hours of CPE 🙂

It worked for me…I recommend it.

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[acamp]

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[fuzyfro89]

It's a personal decision at the end of the day. No amount of facts/wisdom/truth will make a difference, if YOU don't decide you want to be debt free. Also, if you're unwilling to make sacrifices to reach your goals, then again, nothing any of us says will matter.

I will say that 25 years to pay off $30k in debt sounds like an awful way to live.

Are you the type of person who can commit to a plan? Perhaps you start with paying $400/mo now, and increase your payment by $20/mo. Seem reasonable? When you try and make small but consistent improvements, they add up very quickly. If you do it starting June 1st, you'll be paying $540/mo by the end of the year. By next year, you'll have some sort of a raise… this is where it gets important… DON”T SPEND ANY MORE THAN YOU DO NOW. Put your full raise into debt payments/investments.

Lifestyle inflation will eat away at your raises faster than anything. Earning $50k and spending $45k in 10 years turns into earning $100k and spending $95k. Even though your salary doubled, you are basically doing the same thing as you were at age 32 as you did when you were 22.

Good luck, I hope your set a goal for yourself and stick to it!

[Kimboroni]

My method of dealing with student loans was to avoid them. I went to school part-time while working. I took everything I could at a community college, then transferred to a public university (that happens to have a very well-respected accounting program in our state) for the rest. I got a scholarship for 2 years of university and was able to save enough money with that to pay for the rest of my classes. Definitely frugal-minded.

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[san4596]

Iron – I really have to disagree with “student loans are a result of behavioral choices rather than mathematics.” Many people who want an education to better their lives can only take that route. I went to a local college, worked as a server 5 days a week, and attended college full-time. My parents (Mom&Stepdad) paid nothing and made too much for me to qualify for grants. I had to buy my own vehicle and live on my own during college. Now, I am stuck with student loans, and make payments in excess of the minimum. Still, I have many years left to pay.

OP – Pay off the debt asap if you can. Keep making payments as you are, and save a little for your new TV. Do not let your spending get out of hand though. A reward every now and then never hurts. Increase payments every raise, and dump any tax refunds against the debt. Do not go out and buy a new car if the current car is working fine.

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[lleon]

Call me crazy, but I think debt is a financial tool, not a bloodsucking demon lol

Yes, it's great to be debt free and repay early to avoid interest.. BUT, you pay interest for the benefit of deferring outflows. If the interest cost to OP is worth the deferral, keep with your payment plan (which, if I understood correctly, you're paying more than your scheduled payment anyways). If the interest cost seems high because you don't have the need or desire to defer payments, then increase your payment amount. You feeling guilty leads me to believe that yes, you COULD lower some other costs and repay that debt. But hey, maybe the comfort of a nicer place is worth that interest cost. Not all value is monetary, I certainly place a higher value on sitting in my newer car than my 98 honda that got me through college.

Again, it's ultimately to your preference and taste whether other living expenses are worth the interest on your student loans. It doesn't sound like you're in trouble or missing payments, so just evaluate whether that interest cost matches the benefit you get from deferring payments, whether the benefit is monetary or not. If you were struggling and missing payments, then yeah I'd go full blown kill all “unnecessary” costs and pay that down, but this sounds like it's more about your comfort level.

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[John Tucker]

Dave Ramsey is a great speaker and I agree with him on about 70% of the things he says, but Ramsey gets too extreme on things. Ramsey doesn't believe in debt at all, he thinks all or at least “most” debt is bad. I think that we all would love to forgo utilizing debt financing for various items and personal development, but when you are coming from “nothing” without a network of equity partners, donors, a trust fund, etc., then you have to do what you have to do.

Debt isn't bad, debt is a very GOOD tool if utilized properly. The student loans, once you take out the interest deduction and the ACH interest reduction benefits that Sallie Mae provides for example, you are looking at give or take about 5.8% – 6% for most of the loans at max. If you were SMART with planning your education in terms of a good major, a school you can afford and getting your career started efficiently, then the student debt is an excellent tool to help you climb into the middle class and stay there.

With that being said, you should be able to pay your student loans off within 15 years at max if you were smart with your education and career choices.

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[Vlakmir]

^

Not everyone comes from money….debt isn't bad. Heck, you're an accountant so instead of attacking mathematically (do accountants really even need to know math…. 😛 ) look at the cost-benefit and leverage you're getting.

For me, going 45k down in 7 years of college was the best thing I could have done. I don't know how Iron could possibly say that someone could afford anywhere from 5k-30k a year in tuition by working some likely minimum wage job in a college town trying to attend school full time. I have done so many of these people's tax returns, and trust me, no full-time student that works even full time is making nearly close enough to cover their living costs + tuition costs. (edit; I guess this doesn't apply to the frugal goal of going to a community college and transfering to a larger university but rather towards prioritizing your education by giving yourself access to the best teachers and resources, rather than trying to spend as little as possible. I prefer to invest in myself rather than skimp on those costs)

Honestly, in my opinion, you know you just need cash to stay in business, so stay in business. Don't sacrifice so you can chip away at some ## that is going to be there for quite a while – Relieving it will do nothing but allow you to turn that – into a +. And what does that do? Allow you to retire early? Is that what you want? do you like your work?

You of all people should know, cash is what keeps you in business. Net income is really just an arbitrary measurement. Be able to pay your loans, have your fun, and keep your assets yours, and you're golden. Everything else will come over time.

Interest rates are probably so low (my older sisters locked in at like, 2-3% or something), why the heck not put your cash into generating money for you, rather than chipping away at fairly arbitrary debt.

An unwillingness to go into debt is an unwillingness to invest in yourself. I really disagree with the video posted, but that's me. Lots of accountants are much more risk adverse.

TL;DR

Know what you will be when you have a ton of cash in the bank when you're dead?

You'll be dead.

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[jeff]

It gets good around 2:45

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[Iron_Victory]

@San & @Vlak – You both are free to disagree with me. Though both your posts read like you're trying to convince yourselves that you had no other choice (fallacy) than to take student loan debt.

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[Author]

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