So, how do you accumulate $350,000 in student loan debt? Over the coming weeks we’ll be sharing our story to help you, our readers, understand how we got to where we are today. As we share our story we’re going to highlight a few key lessons we’ve learned that we think (hope) others will find valuable.
On to the good stuff!
Lesson 1: It’s never too early to start paying off loans! Set ambitious goals and be pleasantly surprised when you achieve them.
We were married in 2005 after our Sophomore year of college.
Katie is a super-smarty-pants and earned the most prestigious scholarship offered by our University. That scholarship paid for Katie’s entire undergraduate education. Tuition, books, living expenses: the whole thing!
After my Freshman year, I took a break from my education for missionary service. Before I returned to school for my Sophomore year I didn’t have quite enough time to make all the money I needed for the next semester, so I was forced to take out two small student loans totaling $2,500 (at this point it’s important to note that neither of us relied on financial assistance from others after we were married).
Both Katie and I worked part-time on-campus during undergrad. Katie worked for the same department from her Sophomore year through graduation. I worked at the same job during my Junior and Senior years.
When we were married Katie earned $9/hour and I earned $8.50/hour. We certainly weren’t living extravagantly, but with what we earned we met our basic needs. By the end of our Senior year, through raises and promotions, Katie was earning $12.50/hour (as a tutor for a distance education program) and I was earning $11/hour (as a student supervisor).
When we completed our undergraduate degrees in 2007, through diligent budgeting, taking advantage of federal grants, and planning ahead, we still had only $2,500 in debt.
But, should we have had any?
Let’s look at how our earning potential changed; and, if we had kept our expenses static while we were married undergrads, how much of this debt we could have paid off.
Warning: boring math alert!!!
We earned about $5,600 during the first semester we were married (hourly wage x 20 hours/week x 16 weeks in the semester). The last semester of our Senior year we earned about $7,720. After our second semester of marriage we moved into a less expensive apartment, saving us an additional $200/semester.
If we had kept our expenses static from our first semester of marriage through our Senior year of undergrad and saved the difference, we would have accumulated $5,400 by the end of our Senior year; more than enough to pay off the small loans we had and graduate debt free.
Why didn’t we do this? This would have been a relatively easy goal to accomplish, and help us lay the groundwork for setting and meeting larger goals in the future! What were we thinking!?!
We weren’t, or at least our logic wasn’t sound. We thought, “We’re super poor students! Let’s have a little fun right now and we’ll just pay off all our debt when we have our high-paying attorney jobs after law school. Then this debt really won’t matter.” [Spoiler Alert! A lot more on this reasoning (and why it’s wrong) in the next post!]
More than 10 years later we still have this debt. As the years have passed these loans have been a minor annoyance. The balance hasn’t even reached $3,000 yet. And, at 1.75% interest, the increase on these loans isn’t even keeping pace with inflation. Still, this is money that, at some point, we will have to pay back. Also, 1.75% interest student loans don’t exist anymore. Getting ahead of your loans matters way more today than it did when we were young undergrads years ago.
Setting ambitious but reasonable goals (like paying off small student loans even when you’re still in school), and working towards those goals, matters. Foregoing a small expense when you’re young has a huge impact as you grow older.
As we look back on the choices we made with money in our early 20’s (Which weren’t even really that bad. We were living on budget and saving money!) we would gladly give up some of the weekly trips to our favorite Indian restaurant, and the few pieces of furniture, to just not have to ever think about those two small loans again.