How to deal with $250k in Student Loans
Student debt is a ball and chain that weighs so many of our generation down. The average graduate has over $16k in debt. The average graduate student sits at $58k. Loans are high interest and if you find yourself in the unlucky situation of not landing a solid job after graduation there’s no way to get rid of them. They’re a monkey that will follow you around forever until they’re paid off.
Student debt sucks. Mr. and Mrs. Grizzly came out of law school and business school with a couple metric tons of near radioactive debt. When we graduated in 2011 we had over $250k of >6% debt on our balance sheet. It was a mix of federal plus loans, private loans – a wonderful collection of net worth destroying stew. However, we finally were able to break open a couple bottles of champagne when we eliminated the last of it this year. Sending a single $40k wire transfer to bring our debt balance down to zero for the first time in five years.
We’re going to talk a LOT more about student loans, schools, and how we’d manage our own path through the educational morass if we were given a second chance. But today I want to talk about a few broad principals for dealing with student debt. Principals that seem like they should be obvious, but unfortunately aren’t always clear to someone navigating the system for the first time. The Grizzlies themselves did well on some of these, poorly on others. Hopefully, we can help a few people avoid our mistakes and copy our successes.
Don’t Take on Debt in the First Place
Maybe too simple, but it needs to be said. The best way to get out of debt is to never get into debt in the first place. There are a number of ways to do this, some easier, some more difficult.
1. Get Scholarships!
I did undergraduate right. Graduate school not so much. When applying to undergrad I knew I wanted to go big – Ivy League, MIT, Stanford all made the list. But the prospect of taking on $200k+ in debt for some reason seemed scarier to the 18-year-old than it did to the 27-year-old. I also knew my parents couldn’t afford to help me, so I went to my uncle instead, Uncle Sam. I spent half of my senior year in high school applying for and getting Reserve Officer Training Corps scholarships – full rides to almost any school you could get into. You owe the Army four years, but I planned to serve anyway. Looking back, applying for those scholarships was one of the best decisions I’ve ever made in my life.
For grad school, we were much more stupid. Mrs. Grizzly had a full ride to a slightly less ‘prestigious’ school, but the temptation of status pulled us away. A decision we regret to this day. Similarly for me, when I hit graduate school I barely even looked around at my options. I was an ex-military Ivy League graduate, and looking back at what’s available I’ve discovered that I could have netted at least $20k per year in scholarships. But going into graduate school I barely even tried. As I said before, for some reason the debt didn’t seem as scary. It was.
Be like the Grizzlies in undergrad, don’t be like us in graduate school. There are tons of scholarship programs available for those that want to try. There are lots of people out there that want to help aspiring young Americans. Take their money!!! Here are a few good sources your can use. There are MANY more.
2. Go to less expensive schools
Seems obvious right? But this is where the Grizzlies slipped up. We bought into the notion of prestige. That by going to fancy schools we were permanently altering our trajectory for life. There may be some truth to that. But I’ve grown increasingly skeptical over the years. Particularly when you control for what we actually want to do with our lives – lead normal lives and raise our children. If we wanted to be CEO’s and hedge fund managers then, yes, maybe we would need to go to a fancy private school. But otherwise no.
Additionally, going to Stanford or Harvard or Princeton actually does open up some of those outlying opportunities. Going to some random private school that’s little better than the local state university does not. It just ends up costing twice as much for no discernible benefit. State Universities are one of the greatest gifts to students out there. Don’t pass them up.
3. Don’t take on debt for stupid shit
The Grizzlies successful avoided this, some of our friends did not. We generally did a great job of not becoming crazy spenders during our days in both undergraduate and graduate school. How did we do it? Our grad schools didn’t completely overlap. Mrs. Grizzly had a couple years in law school while I was still in the army. Mrs. Grizzly started here firm job a year before I finished up. We only had one year of overlap. Don’t underestimate how huge this is. Having a steady stream of income at almost all times prevented us from dipping into our savings or taking on more debt.
Our friends often didn’t follow this advice. One took out an extra $10k to go shark cage diving. Another took on student loans to upgrade their apartment in downtown San Francisco. Another bought a new car while still in law school. Don’t do this!
4. Accept help from family and friends.
Mrs. Grizzlies family had an old friend near her law school. Instead of getting a fancy apartment like many of her friends she stayed with the family friend at a much-reduced cost. Same goes for living with parents or for having a passel of roommates. There’s no shame in saving some money!
5. Live like a student
Students are poor. You’re not making any money, you’re mandatory outlays are HUGE. Live like this is the case. Don’t limit yourself to ramen, but you shouldn’t be going out to dinner on a regular basis. Go on the camping trip but avoid the trip to a Bali resort. Live in the somewhat dumpy one-bedroom apartment instead of upgrading. The Grizzlies did this very well. As a result, our debt was just for our tuition. It was still HUGE, but it could have been MUCH larger.
Deal with it fast
But if all those decisions have already been made, and if you’re still stuck with a pile of debt, what should you? You can’t go back in time and go to a different school or spend a lot less at bars. Thankfully, getting out of debt is also pretty simple. Difficult, but simple.
An easy step that MANY people miss. If you’re paying high interest but could pay lower interest but don’t because you’re too lazy to get off your butt and fill out an application there’s only one word for you: idiot. Not everyone will be able to refinance, but if you have a good credit score and good income it is almost always an option. The Grizzlies used Sofi and got our rate down from an average of 8.5% on our debt to less that 5%. On $250k this led to a direct savings of almost $9000 PER YEAR. This is huge and took us all of about 2 hours in total of our time. You won’t find a better payoff for your time than that.
2. Avoid lifestyle creep
You know how long we kept that little rent-controlled one bedroom grad school apartment? Four years. What did we drive while paying off this debt? A 2006 Honda Civic Hybrid and a 2005 Toyota Rav 4. This was despite both of us having jobs paying >$150k annually. We watched as our friends upgraded to apartments in San Francisco, bought new Audis and Teslas, and generally threw their money away. Most of them are still on the 30-year-plan to pay off their student debt. Ours is gone.
3. Set a timeline to pay it off
Once again, this seems simple. But it needs to be said. Don’t just accept the 20-30 year repayment plan on your loan. Attack the debt like your life depended on it, since it does. When we refinanced we shifted our loans to a five-year payment plan, and we paid them off earlier than expected. Every extra penny we made from bonuses to stock grants went into getting rid of them. Now we’re done and it was the best set of decisions we ever made.