What are the best ways to pay off student loans exceeding $350,000?
I was a victim in the early 2000s of the EDMC (Art Institutes) student loan scam. These private loans are well over $150,000 and climbing, and I am expected to pay $2500 a month, though I'm currently paying $494 a month with only 2% interest (a "hardship program" they have me on). I also have a master's degree, which cost me another $200,000 in total when it was only supposed to be $80,000. Thankfully, though, my masters loans are federal, and thus have income-based repayment plans and forgiveness programs, that I can handle. It's the private loans that are taking up all of my funds.
I bring home about $35,000 a year after taxes. Rent is $1070 a month. I want to get into investing but with student loans and the cost of living, I don't know where to find the money to invest to help me pay off my loans faster.
There are no income-based repayment options with private student loans, and there are no forgiveness programs. You cannot write them off with bankruptcy (which I would gladly take over this financial burden). What are my options? How can I invest, and where should I invest? I am a financial novice and that is why I am in this disastrous mess. Where can I go from here?
Yikes. Sorry to hear these miserable student loans got their hooks in you. You don’t need me to explain why your situation isn’t ideal, so let’s just look at the options.
Many people would pretend this loan never happened and spend the rest of their lives running from collectors. I don’t advise you take this route, as the repercussions will haunt you forever. You don’t want to deal with wage garnishment and constant collections calls, not to mention atrocious credit and having to explain your situation to employers and landlords.
The other option is to work 20 hours a day, live off ramen, and try to speed up the payment process. To me, that sounds impossible, and it certainly won’t be enjoyable. If that’s the type of work ethic you have, give it a try; I think life is too short to let these loans dictate every minute of your day.
The last option is to take this one step and one payment at a time. Keep paying the minimum and fight as hard as you can to stay on the hardship program. For the time being, you just have to think of the payment the same way you do a monthly gas bill; don't measure it against the total balance. Just keep working hard, do what you can to increase your earning potential, and stay away from borrowing more if you can help it. You might not be able to get rid of the debt anytime soon, but that’s just the reality of your situation.
If you can earn enough to cover all your bills, pay the minimum loan amount and still put some money in an IRA or a Betterment account, go for out. It’s going to be hard to invest substantially, so you need to put your money somewhere with limited fees, and you need to remember not to compare your investment to your debt, as that will be very discouraging.
You’re in a bind. There are no two ways about it. However, this is the beginning of your miraculous comeback story. When you get to the other side of this, it won’t be because you bought a winning lottery ticket - it’ll be because you worked hard, managed your money wisely, took advantage of every opportunity to up your earnings, and chipped away until you beat the debt.
Dear Financial Novice,
Thank you for attacking this situation now.
I agree with you, paying off student loan debt isn’t fun and may feel like a disastrous mess however you have squarely and very clearly identified your predicament. Bravo, That my friend is the first step in your incredible journey to financial recovery, paying down all debt, one baby step at a time where you will achieve financial independence one day if you keep on track dedicated to this paty. Do not dispair, keep the focus, "tunnel vision style" believing you can do this.
If as you say this was an orchestrated scam perhaps there is legal relief. Take some time to meet with an accountant and or financial advisor and or attorney to review the situation and the paperwork/loans to discover fact from non fact. Overturn each stone, if indeed there was scan involved and you did not benefit from the degrees then seek help. Dig deep taking time and attention to Investigate this option but at the same time if you are the one held accountable move forward to attack this on your own.
I applaud you for caring about yourself enough to pursue your career passions, obtaining not only an undergraduate degree but in addition a master's degree toward your chosen profession, again, bravo to you. Now as to attacking Student Loan Debt "head on" marching through the storm to financial independence. This financial encumbrancemost probably keeps you awake at night, provides an occasional headache, indigestion, takes up much of your time in worry and years of delayed gratification for other things in your life.
Lets dedicate now to move on....
1. AUTOMATE A REPAYMENT PLAN
Immediately set up a system to automate your loan payments so make the work out of sight out of mind.
Analyze whether you should refinance your student loans to a lower interest rate utilizing any number of specialized loan refinance companies who cater specifically to student loan debt.
Attempt to double up on payments even if you can only do this occasionally when and when and if you are capable. With your present income and have reported, is it possible for you to obtain a second job (a fun job) dedicated solely to paying down loans. The money from this second income should be automated directly into the payoff without you seeing it. This money is not intended for you to spend, therefore it is "undercover"!
2. VISUALIZE YOUR "PAYOFF DATE"
In order to command your own roadmap you must be empowered with the end in sight "pay off complete" even if the road is long and hard. One must have a clear visual of what you are up against and obstacles you must face.
There are numberous web sites and financial services providing a "dashboard" allowing for a visual reality. You can contact your lending agency directly holding your loan. They can provide a visual on your behalf. Otherwise, meet with any one of a number of trusted financial advisors who become your trusted fiduciary to take you through the process of repayment to recovery and beyond one step at a time.
Understand, please, you are ahead of the game by the concern level I feel you display with which you share your scenario herein. Start now, do not delay the inevitable journey ahead of you.
Beleive me, self analysis will benefit you in the long road. Completion and pay off can and will be done. Allow yourself to be the voice of proof for others to empower themselves and see clear to the road ahead.
3. SECOND JOB, PROMOTION, INHERITANCE, WINDFALL
Put as much of your present and future income whatever amount toward student loan debt. Assess whether the job you hold offers loan forgiveness programs. It appears you have done your homework, you must continue a payoff plan and in some way somehow enhance the payoff plan. Step it up set a deadline...sweat a little! Get a "side hustle" fun job doing something you love...photography, babysitting, Uber, etc. ....
4. SACRAFICE AND MOTIVATION
To have the money required to reach the goal means trimming the budget. In the extreme, you must be able to cut your living expenses somehow and in some way. Are you able to move back in with understanding parents for one to two years to pay down debt faster. Are you able to move in with an elderly individual for free rent enchange for activities of daily living for someone in need. Think of creative out of the box options to get to a solution. Caution, there are many programs out there claiming to have the solution, be careful.........THE SOLUTION IS YOU.
It may sound horrible or such a disaster to sacrifice but really it is a win win. Think about it, you created the debt, you must rid yourself of debt now! There is no time to waste. Paying down debt is rewarding! Short term sacrifice pays off in long term financial comfort and success. The only limit is your motivation to succeed and be debt free.
What are you waiting for!
5. WRITE A BOOK, EMPOWER SELF, EMPOWER OTHERS
Write out your financial strategy to help yourself one day at a time. Translate this into a roadmap to assist others in the process keeping a daily journal of progress.
Utilize this period in your life to create YOU INCORPORATED.
7. I WILL NOT FAIL
The difficulty of a loan balance is just that, it must not overcome you. For you to master the total, you must translate your reality into baby steps accomplished one step at a time toward financial independence. You will become a sounding board of success, acknowledge this before you have accomplished your goal, assist others to achieve financial independence once encumbered with student debt.
Explore options to promote your art. I feel you are a creative individual possessing great abilities and talents. Speak to people, engage with your "art" audience, learn how to increase your earnings as YOU INCORPORATED in your focused area of practice.
Go to a book store, read read read read about created people who have made it in your field. Select featured Autobiographies about individuals you are familiar with who paved the way to independence and personal greatness from nothing to somethiing. Believe you can do this. Visualize the process unfolding as it should. Silver linings come when you least expect them. First you must begin and take the first step.
It is a wonderful thing; dreams are free. It does not cost to think about a day without school loans and without debt. Allow your self time to go "there" often if it suits you, believe it will be so, write about it.
Work hard, discipline yourself to achieve this, write out a road map. Sadly we are unable to uncreate the scenario we are in. Facts are facts. Creatively make the debt disappear sooner than later.
Financial Planners and Wealth Managers act as trusted fiduciaries to clarifying a plan. The work is left for you to execute a plan and make the erradication of debt a reality.
8). EMPOWER YOUR MONEY
Your unique strategy to develop a long term plan to invest in the markets and pay off debt and school loans will be created based upon many things depending on your time horizon, your goals, risk tolerance, life expectations and schooling. Before you learn to invest in the markets, purchase your first home or make any commitment which has lasting and long term consequences make certain you start with a money consciousness transcending all you will do. This is a multiple step process involving learning about money, learning about savings strategies, learning and gaining insight about you, your family and how money was cared for growing up. Go to Mint.com or like site.
Gain insight from the books you read about investing, not only the patterns and styles of investing also the individuals who invested and how they profited during their tenure as investors in the marketplace both in the stock market, real estate and investing in themselves and their ability to become the controling factor of their personal and long term success- self made entrepreneur. Start a money diary, meet with like individuals. Learn from great of the greats, Market Wizards, Warren Buffett, George Soros including business moguls Steve Jobs, Oprah Winfrey and Karl Icon. Tesla did not just become a great company nor did Apple. It took dedication, determination and mind set to lead the way to greatness. Then it took dedicated action period.
Understand Investment strategies, savings strategies, trading mentality. Be humble, patient and focus on the long term. This is a life commitment to grow savvy and smart long term. I call it the "tunnel vision approach.The platforms available to you are diverse including among the many (not in order of importance or worth) E-Trade, Interactive Brokers, Fidelity, Morgan Stanley, Sink or Swim. There are many professing to teach and mentor money consciousness, in the end and at the end of the day the proof is in the pudding- you control.
I run a small group for millennials, college students and eager investors to empower a mindset of saving and automation of finances. I teach basic strategies about how to watch and understand the market, setting up a dummy account, moving forward knowing risk tolerance. My goal- mentor caution, care diligence long term. Good for you to start now thinking about investing and paying off school loans. I would encourage you to be strict on yourself, find a small amount monthly, if only $100 to start the investment account. If you are able to begin with the 100 per month now and never allow anything to stand in your way, despite school starting now, the power of compounding over the years and over time will allow you to amass a great fortune that will place you in a position of attaining financial independence. Stay on track. Stay focused.
Understand there are countless resources and groups and books available about money management and financial independence. Allow yourself to research many of the resources, read success stories, empower your money along side of and despite the journey of graduate school. You will be better for it!
I am passionate and care about helping you plan for your financial independence.
I am ready and willing 24/7 to answer any and all questions about money you many have.
Wishing You Much Good Luck on your financial Journey!
I am here to assist you every step of the way.
All the best,
Janet Grace Beers Attard, MBA, RIA
J. Oliver Maxwell, LLC
Wow. This one was difficult to read. My response is also difficult to write. Your options are limited when it comes to paying off the loans, so it comes down to 1) making more money and/or 2) cutting expenses elsewhere. The average MBA grad is getting paid $100k right out of school, so I would see what you can do to get more towards that "average". Or pick up a weekend job or do something online to make a few extra bucks. Try to figure out a cheaper living situation, and cut other costs. Those loans aren't going away, and you could be paying them for another 50 years at the rate you are going. Sorry to be so blunt...tough situation to be in.
I know this is going to sound counter-intuitive, but I think you should hire a fee only registered investment adviser (RIA) financial planner who specializes in student debt management. Yes, there are those available. Go to the XY Planning Network website and find an adviser in your area that specializes and has been trained in student debt management. Your situation is so precarious that you should get professional guidance. The good news is you have a good education and you will be able to work out of this situation. Don't get discouraged. The RIA will also help you start building an emergency fund and start an investment program. Best of luck to you.
I usually don't like to answer these kinds of questions since it reminds me of the games that kindergarten boys always play: would you rather get run over by an 18-wheel truck or be eaten by ten thousand fire ants.
In your situation, don't even think about trying to pay off the loan. Simply keep making the minimum possible payments each month. If they offer you a chance to make even smaller monthly payments, take it. Even if your loans end up stretching out until you're 120 years old, paying the monthly minimum makes sense because you are in a hopeless situation unless you marry a fabulously wealthy person.
At least if you do this then your living situation will be reasonably tolerable. You'll have your debt for the rest of your life, but so did Thomas Jefferson and he did okay.