2 In Monthly Expenses

So! You had $350,000 in student loan debt. Tell us about that…

So! You had $350,000 in student loan debt. Tell us about that…

Ok, I will.

First, apologies for the hiatus. I made the choice to have knee surgery over the holidays to allow for maximum downtime. Even though it was nice to have downtime, surgery still sucks. And between recovery and catching up in other areas of my life, blogging had to be put on hold.

And, I’ll be honest, I struggled with whether or not to share as much specific information as is contained in this post. However, after a lot of thought, I decided to be open with my information. The reason I wanted to be specific is because, as we go through this journey of debt repayment I don’t want to take any shortcuts. When I say that I’m paying off almost $350,000 in student loan debt in less than five years people are skeptical. I must either be rich or living in abject poverty. I’m neither of those things. The more you know about how I’m doing this, the more confidence I hope to instill in others that they can do it as well.

Now, back to the subject at hand: debt. Or, more specifically, our plan for paying off a whole ton of it quickly!

In August of 2016 we hit our debt high water mark of $342,568. “Wait”! “You said $350,000”! I know, I know. I rounded up for ease of comprehension and a little dramatic effect. Close enough though, right?

We had been on income based repayment for a few months to qualify for a home loan, and we were putting all of our “extra” money at this point towards our lowest-balance, highest-interest loans. In August we refinanced all of our student loans that had interest rates of over 5.5% using So-Fi (more about refinancing in a future post). The balance of the refinanced loans was $300,976.11.

Because we’re planning on paying off these loans within the next five years (seriously), we opted for a variable rate which started at 2.94%. Since August the rate has moved a little, both up and down, and we’re currently paying $2,943.90 per month to So-Fi. If we continued to pay the minimums on this loan we’ll pay it off in 10 years.

But, we’re not planning on paying the minimums!

First, we need to deal with some of the remaining $47,500 in loans.

The largest of these loans was a “Bar Study Loan” from Discover. In March of 2011 we were out of money and the job market was still bleak. It was at that point I decided to take the Bar to avoid, or at least have a good answer to, the question “did you take/pass the bar”? We borrowed $13,000 to cover living expenses for 4 months and pay for my bar study course. This loan was at a rate in the neighborhood of 8%!

We were barely making ends meet for years after I took (and passed!) the Bar. Over the years, as this loan was in deferment, it ballooned. I just checked how much I’ve paid, and how much we currently have as our remaining balance. On this loan, to date, we’ve paid $8,581.89, and our remaining balance is $10,823.62. Meaning, by the time we’ve paid off this loan, the $13,000 we borrowed will have become about $21,000! OUCH!!!

The minimum payment on this loan is only $134.88 a month, but if we paid this loan at this rate, we’d be in the poor house forever.

This loan was technically a private loan, so we couldn’t refinance it when we consolidated our other loans with So-Fi. This loan is offender number one on our list, and we’re throwing every extra penny we have at it to pay it off as quickly as possible. Our goal is to pay off this loan before the end of 2017. However, we’re confident that as we focus all of our energy towards this loan, we’ll see the balance fall more quickly than we expect (more on outperforming expectations in a future post).

The remaining loans aren’t nearly as onerous. We’ll likely wait until after our So-Fi serviced loans are repaid before we tackle these.

In brief, these loans are:

  1. A $15,500 loan we took out to pay for my MBA at an interest rate of 5.5%. We’re currently making monthly payments on these loans of $297.70.
  2. Two small loans from undergrad with a balance of $3,682.20 at an interest rate of 1.4%. These loans aren’t even keeping pace with inflation but at some point I imagine having them around won’t be worth the annoyance they cause and we’ll pay them off. The monthly obligation is only $50.
  3. The remaining ~$7,500 is from a small loan I was able to take out during law school called a “Perkins Loan.” These loans are relatively low interest (5%) and have a few other special provisions attached which made them slightly more valuable to keep than refinance. The monthly payment on these loans is $63.64.

So, when you add all this up, the monthly minimum obligations on all our outstanding student loans is $3,494.12 for a ten-year repayment.

For many, the idea of carving $3,500 a month from their current spending may seem impossible. Though Katie and I are both in good work situations currently, we’re by no means rich. So far we’ve been able to meet our monthly obligations relatively easily, often with a fair amount to spare and apply towards our Discover loan.

How, might you ask, are we able to do this?

I’m glad you asked!

In one word: spending. Or rather, the lack thereof.

Next week I’ll give you a breakdown of our monthly budget and how we’re able to make numbers like this work (Spoiler Alert! It’s because our monthly living expenses are much less than our monthly expenses for student loans).

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  • Stevenson Smith
    February 21, 2017 at 7:00 pm

    Mark,
    As a recovering Student Loan Addict myself, I’m curious to know just what the breakdown was of your over 5.5% interest rates and their amounts. The core of my desire is to get a pulse on just how much gouging is going on for initiators of student loans, and maybe figure out why those interest rates are SO high compared to interest rates in general. I am liking this blog and was concerned about your hiatus. Glad your ACL functions again.

    Stevenson

    • Mark Apker
      February 27, 2017 at 3:09 am

      Stevenson!

      Thank you for the question. My interest rates from law school were high (averaging around 7.5%) because of when I started. In the good ol’ days of 2007 the market was strong, business was booming, and rates were high. It wasn’t until the crash of 2008/2009 that things began to slow down. Unfortunately, by that time my student loan rates were more-or-less set. Then, I was stuck with both high interest rate loans AND a terrible job market. Double bonus!!!