Author Topic: Reader Case Study- pay off loans or save?  (Read 4627 times)

Shieldmaiden

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Reader Case Study- pay off loans or save?
« on: May 22, 2017, 08:20:08 PM »
Life Situation: I've wanted to post a case study for a while, but I didn't have anything but a few hundred in savings to work with. The 22 year old recent college graduate, just getting started on this whole FI/RE business. My mom currently claims me as a dependent because I just graduated, although I am set to live on my own as of June 3. I live in Florida, the St. Pete/Tampa area. I just got offered a job as an inner city teacher, and part of the benefits include a fully-furnished on campus apartment with utilities covered by my employers. Edit: Got my driver's license. I move in two weeks.

Gross Salary/Wages: 450/month, plus a food stipend of 215/month. Edit: I definitely don't plan on using all of that food stipend on food. I don't eat out much if at all and I enjoy cooking. My goal is $4/day, which would be $124 a month. That augments the 450 with an additional 91, bringing it to 541/month. That gives me a bit more breathing room, but it's still not ideal.

Edit: Hours are 7am- 3pm, with a couple extra hours a day for curriculum planning. One Saturday out of the month I will be needed to work as well. 

Current expenses:
I don’t really have many regular expenses at this point- I generally just buy necessities when I need them, such as toiletries. My mom has me on her cellphone plan, and given I’ll be moving into a fully-furnished rent-free apartment provided by the school I’ll be teaching at, and that I have a generous food stipend, overall I shouldn’t have many expenses. Which means now is the best time to take advantage of the fact that I can really live below my means, although I am not making much.

Edit: Estimated monthly payment for my student loans is 338.50. For some weird reason, it thinks I'm in school until 2021, which isn't the case. I'll have to call about that.

Edit2: Just found out they will have me filling out paperwork for loan forbearance the day I move in.

An additional long-term exception is that I might have car insurance in a few months. That’s still up in the air.

In more recent terms, I have an internship abroad with a very specific dress code that I’ll need to purchase for, and I’ll have to buy some things like pots and pans to furnish my apartment- not furniture, however.

Assets:
About $300 in cash and savings
A bicycle
A few savings bonds taken out when I was a baby that haven’t matured yet
5,000 loan forgiveness when I finish one year working at this school.

Liabilities:
Student loan- 28,000  principal

                  Principal Balance    Interest    Accrued Interest      Outstanding Principal
Loan 1:               3,500                   3.86                  --                                3,500       
Loan 2:               2,000                   3.86              270.96                            2270.96
Loan 3:               2,000                   4.66              227.47                            2227.47
Loan 4:               5,500                   4.66                  --                                5500
Loan 5:               5,500                   4.29                  --                                5500
Loan 6:               2,000                   4.29              129.07                            2129.07
Loan 7:               5,500                   3.76                  --                                5500
Loan 8:               2,000                   3.76               27.58                             2027.58
                                                                                             Balance: 28,655.08


Specific Questions:  I know I should be saving some of my income, but I’m not sure proportionally how much I should be saving/investing and where against how much I should be siphoning into paying off my student debts.

Work also offers several benefits, but since my mom is very busy with her own tax and legal stuff, I don’t really have anyone except google to go to with my questions and google hasn’t always proved very helpful and the MMM search feature isn’t working for me.  If these questions aren’t where I should ask this I’m sorry- If anyone knows where I can find a place online to learn all this that would be appreciated. There will be someone to explain this in the first week of work, but I need immunizations for my internship and I frankly cannot afford them. The sooner I can get the health care implemented to cover them, the better.

Edit: I looked over the health insurance booklet and either they don't provide a quote or I'm missing it.

Edit2: An update package I just got states I will receive full health benefits, but no note about additional cost to me if any.

Edit3: Confirme Health Insurance is no cost to me.

For the long-term disability, there are two options that are identical except for the maximum benefit duration- 5 Years to age 70 or to age 65/Reduced Benefit Duration- and no amount of googling has clarified the difference. The first plan is about a dollar semi-monthly, the second is about a dollar and a half semi-monthly.

Short-term disability through Aflac is offered, but the prices are significantly higher- 5.20 for 800/month coverage and 7.80 for 1200/month coverage. Is this worth it?

Another offered benefit is a Flexible Spending Account, which I understand is for expenses like health or dental that insurance won’t cover. The FSA is not taxed according to government websites. (https://www.healthcare.gov/have-job-based-coverage/flexible-spending-accounts/) This and the Health Savings account are mutually exclusive, and the HSA seems to have more overall restrictions on it- can’t be claimed as a dependent, can’t be entitled to Medicare, etc. However, the HSA seems to roll over the balance while the FSA does not. Which, if either, is worth getting or should I opt out?

My employers also offer a 100% employee paid Group Term Life Insurance Policy. I’m assuming I’d be foolish not to opt in if they entirely foot the bill. Is that correct?

Current To-do List:

*Look into Income-based repayment
*Call to find out why my graduation date is wrong
*Call to find out minimum payment for student loans
*Email professor questioning wisdom of the car
*Find a local part-time job with a night shift I can take
*Go with the HSA

« Last Edit: May 25, 2017, 07:18:02 AM by Shieldmaiden »

Laura33

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Re: Reader Case Study- pay off loans or save?
« Reply #1 on: May 23, 2017, 06:36:33 AM »
FYI, the long-term disability and short-term disability is NOT health insurance.  These are policies that will pay part of your salary on an ongoing basis if you are disabled and unable to work.  It does not pay your medical bills.  Usually the maximum is 2/3 your current annual salary.

Does your employer offer actual health insurance?  Usually a HSA is offered together with at least a catastrophic health insurance plan.  The idea is that your health insurance would have a high deductible to keep the premiums down, but then you would save pre-tax dollars in the HSA to cover what the insurance doesn't. 

Student loans:  there are different kinds.  Some do not accrue interest until 6 months after you graduate; others will accrue interest but you just don't have to pay it until 6 months after you graduate.  For the loans that are accruing interest, it is in your best interest to start paying them as quickly as possible.

Finally:  $450/month?  That's not a typo?  That is a very low salary, even with the extras.  What are your minimum student loan payments going to be?  Are you signed up for income-based repayment?  I think the first step has to be to figure out what your loan payments are going to be and what your options are for those, because at $450/mo, just trying to pay the loans on the standard 10-yr schedule could eat up a lot of that.

The #1 best thing you can do to get on the path to FIRE is to figure out how to increase your income. 

Shieldmaiden

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Re: Reader Case Study- pay off loans or save?
« Reply #2 on: May 23, 2017, 09:12:32 AM »
Right, I know- I see where I poorly worded my post and neglected to add the health insurance information. I have edited it accordingly. With that in mind, are either short or long term disability insurance worth getting?

Actual health insurance is offered as well, but I don't have access to the paperwork at the moment. I will update the post this evening. That aside, are the HSA or the FSA worth getting as well? Although the HSA has more restrictions, my understanding is that it carries over the balance whereas the FSA does not.

OK, that makes sense. I’m not sure if it’s possible to only pay the ones that are already accruing interest or not- in all likelihood, I’ll have to call to find out.

No, 450/month is not a typo. Minimum payments look to be something like 334, but if I start paying those off right away with as much as I can spare, that should go down, shouldn’t it? I am not signed up for income-based repayment, I’ll have to look into that.

As for increasing income, I don’t really have many options. It looks like being a teacher is going to eat up most of my time, although I might be able to work the night shift at a local grocery store. Is it worth asking my employer if I’m allowed to take an additional job or should I just do it?

skuzuker28

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Re: Reader Case Study- pay off loans or save?
« Reply #3 on: May 23, 2017, 09:18:27 AM »
Right, I know- I see where I poorly worded my post and neglected to add the health insurance information. I have edited it accordingly. With that in mind, are either short or long term disability insurance worth getting?

Actual health insurance is offered as well, but I don't have access to the paperwork at the moment. I will update the post this evening. That aside, are the HSA or the FSA worth getting as well? Although the HSA has more restrictions, my understanding is that it carries over the balance whereas the FSA does not.

OK, that makes sense. I’m not sure if it’s possible to only pay the ones that are already accruing interest or not- in all likelihood, I’ll have to call to find out.

No, 450/month is not a typo. Minimum payments look to be something like 334, but if I start paying those off right away with as much as I can spare, that should go down, shouldn’t it? I am not signed up for income-based repayment, I’ll have to look into that.

As for increasing income, I don’t really have many options. It looks like being a teacher is going to eat up most of my time, although I might be able to work the night shift at a local grocery store. Is it worth asking my employer if I’m allowed to take an additional job or should I just do it?

HSA is far superior to a FSA: higher contribution limits, funds can be invested, and balance carries over from year to year.

I'd skip disability insurance for now, since you are basically working for free it won't give you any appreciable benefit should you become disabled.

How long do you plan to work at this school?  Before factoring housing (but including the loan forgiveness) you are making less than minimum wage (assuming full-time).  Have you looked at teaching positions elsewhere?
« Last Edit: May 23, 2017, 09:29:17 AM by dleavitt »

ysette9

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Re: Reader Case Study- pay off loans or save?
« Reply #4 on: May 23, 2017, 09:28:55 AM »
I second the thought about looking for another job. Is there anything else available? To me it sounds almost like indentured servitude since you are basically trading your work and time for a roof over your head. With your salary only enough to make the minimum on your loans, you are basically stuck indefinitely. I think a better option would be to find something that pays a real salary and find a cheap roommate situation so you can bring home real money for paying off debt and saving.

Proud Foot

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Re: Reader Case Study- pay off loans or save?
« Reply #5 on: May 23, 2017, 11:02:10 AM »
With that low of a salary and your loans you really need to look into IBR for them. Also agree with the other posters about looking for another job.  The $5k loan forgiveness after a year is nice but are there other requirements for this?  If you really want to work there I would highly look for a second job you could work on Saturday and Sundays as well as pick up shifts during school breaks.

Shieldmaiden

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Re: Reader Case Study- pay off loans or save?
« Reply #6 on: May 23, 2017, 12:26:25 PM »
@dleaveitt: OK, thank you. I’ll go with the HSA and skip disability.

One year, maybe two depending on how this year goes. To be honest, the housing is the biggest draw for me- I would much prefer to stay with my mom and siblings but there’s simply no room and finding affordable housing in the St. Pete area is very difficult.

@Ysette9 I haven’t had the chance to do much job hunting in that area. I can start looking now though. The place to stay is a large draw for me, to be honest. I would much prefer to stay with my mom, but that’s not really an option right now.

@Proud Foot (love the name, by the way) The only requirements for the 5k loan is that I work a certain number of hours in a full school year. (Still not close to my paperwork, will update when I can get to it).


I’ll keep job searching while I’ll employed- one of the problems is I have a gap in my resume between working as a summer camp counselor in 2015 and now, and I couldn’t find anything in my college town that would take me when I looked from January- March. Another issue is that I’ll need to work some but not all weekends at the school. A night shift at the local grocery store might be possible, if it leaves enough time for planning lessons and other responsibilities. Thank you all for your input, I really appreciate the time you've spent on this post.

ysette9

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Re: Reader Case Study- pay off loans or save?
« Reply #7 on: May 23, 2017, 03:46:01 PM »
Wow. You're looking at working full time PLUS most weekends for less than $8k a year? To me that sounds borderline criminal. That's what, $2-3 an hour? If you take this job, make yourself a signed and sealed promise and get a good friend to hold you to the promise that you will stay no more than one year. I think you would likely be much better off working at someplace like Costco and tutoring on the side if your goal is to get into teaching.

Shieldmaiden

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Re: Reader Case Study- pay off loans or save?
« Reply #8 on: May 23, 2017, 07:34:17 PM »
Not 'most'- more like one Saturday a month, and I'm still free on Edit:Saturday evenings
« Last Edit: May 23, 2017, 10:50:13 PM by Shieldmaiden »

Lady SA

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Re: Reader Case Study- pay off loans or save?
« Reply #9 on: May 23, 2017, 08:03:46 PM »
most full-time jobs mean you are free in the evenings anyway. That's not a perk.

Yeah, your job is ripping you off. Look for something else asap. Literally anything else.

edit: the only "perk" of interest at your employer is the 5k loan forgiveness after a year, but if you went out and got a job with an actual decent salary you can pay that amount off yourself plus more within that same year, so its negligible. Plus the jump in salary would be worth more over the long run. Seriously, run, don't walk, from this job. I'm not seeing any upsides to it.
« Last Edit: May 23, 2017, 08:08:59 PM by LadyLB »

letired

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Re: Reader Case Study- pay off loans or save?
« Reply #10 on: May 23, 2017, 10:34:08 PM »
Did they quote you an annual salary for this gig at all? Even including the food stipend, loan forgiveness amount,  and a very generous estimate for the housing cost, I have to agree that you are being criminally underpaid, especially for a person with a college degree who is also expected to work any weekends. And that's before I subtract whatever car/car insurance costs that are part of the job requirements.

To answer your actual questions:

- The interest rates on your loans seems to be low, which is really good. Once you're around 4%, it can often make sense to make minimum payments and divert your income to other concerns like retirement, and apartment deposits. If you post a breakdown of the individual loans we can be more specific. But interest rate is not your biggest issue. The main problem is your loan payment to income ratio.

- You should find out asap if your loans qualify for income-based repayment or the public service loan forgiveness program (I'm assuming your job would qualify as a public service job. If it doesn't, you need to get out even more). If you qualify, you want to get signed up asap so you can get started on those qualifying payments when you're loan repayment starts. I'm assuming that you will get a better paying job soon and crush the loans quickly, but just in case, I think it makes sense to get signed up. If nothing else, it will give you a bit of mental breathing room.

- Your minimum payment on the loan does not decrease over the life of the loan unless you qualify for a repayment adjustment as previously discussed. That's why it's called a minimum payment. That is the absolute lowest amount you are required to pay every month until the loan is completely paid off. That is why we are so worried about the incredibly low pay of this job. If you are correct and your loan payment is $334 and your cash in before taxes is $450, you have nearly $0 to save toward the things you need to make the jump to a better paying job. Unless you are incredibly disciplined in your spending and never need new clothing or shoes and never need a bike repair and never need to take public transportation and never need to eat outside of your food stipend, it could take you years to save up enough to 'afford' to take a real job because you'll never scrape together enough for a security deposit much less first month's rent on an apartment in a market you say is really tight.

- HSA is the way to go, especially as a young healthy person, unless you have ongoing medical needs. Some employers will partially fund the HSA, though I would certainly not count on it at this job.

You might also look up monstermonster on the forum. She has a lot of experience living very frugally at very low wage jobs.

Good luck! The transition from college to working is a challenge! Keep posting and we'll do what we can to help!

llorona

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Re: Reader Case Study- pay off loans or save?
« Reply #11 on: May 24, 2017, 12:15:59 AM »
Is this teaching position through AmeriCorps or a similar type of program?

former player

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Re: Reader Case Study- pay off loans or save?
« Reply #12 on: May 24, 2017, 05:45:46 AM »
Don't get a car on that income.  If the job requires you to drive, the job also needs to provide a fully paid for, taxed, insured and fuel-up vehicle.

It seems to me that your biggest problem is the geographical limitation you are putting on yourself, which has killed your employment prospects for the last year.  My advice would be to look for a professional level job anywhere in Florida, preferably with a public school that sets you up on the career track in the State system, get your post-college experience and references, and after a year or so use them to get a professional level teaching job back in St Pete's.

You are 22 and a college graduate.  Time to cut the umbilical cord with your mom, live on your own, sort out your own tax and legal stuff.  You are an adult, not a child, and it's time to act like one and properly set yourself up for the rest of your life.

I think Mrs Pete here on the forums is a teacher in the Florida system, and might have some specific advice for you.

Shieldmaiden

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Re: Reader Case Study- pay off loans or save?
« Reply #13 on: May 24, 2017, 10:30:30 AM »
@letired (great username)

The annual salary is 5,400. The car I would drive is a van provided by the school, and they pay the insurance for that.

I have access to the documents now so I'll go back and fill in the missing info, and a more specific breakdown of student loans, when I finish posting this reply.

Ah, ok. Clearly I was mistaken about the minimum payment too.

@llorona

Yes, it is through AmeriCorps.

@former player

The car wouldn't be something I purchase, an old professor of mine really, really wants to buy me a used car from one of her relatives, and she also wants to pay the insurance for the first few months. Obviously this still leaves me with the problem of paying for the insurance *after* that date. I already brought that up to her but she seems to think she can get the car for a very good price from her relative and isn't sure I'll ever get that price again. At that point I hadn't thought to consider minimum student loans and repayment in addition to the insurance, and I'll email her with the full layout of my concerns shortly. If she must drop a few hundred on me, I can think of several other places I need it more.

The reason I want to stay close to my mom is multi-phase. She left my deadbeat abusive dad a year ago, bringing my two younger siblings (age 14 and 12) with her. She's starting the divorce procedures and I need to be in at least the county for when the case goes to court. My father thinks he has the right to at least 50% custody and nothing is further from the truth. My mom and siblings need the emotional support- even if I'm not terribly close I still need to be available. Given the high rent in this area- even with a roommate- this is a chance to get out on my own.

Thank you all so much for taking the time to reply.
« Last Edit: May 24, 2017, 11:21:28 AM by Shieldmaiden »

surfhb

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Re: Reader Case Study- pay off loans or save?
« Reply #14 on: May 24, 2017, 10:59:29 AM »
I don't understand why you are working at this salary level?  Experience?

Bracken_Joy

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Re: Reader Case Study- pay off loans or save?
« Reply #15 on: May 24, 2017, 11:09:05 AM »
I could be totally off on this, but based on the 'I would stay with my mom if I could', 'I need my driver's license first', 'I haven't had much of a chance to look at other jobs', I feel like the big part of the appeal is that this job will define your life. It will tell you where to live, it will take most of your working hours, etc. Rather than making your own Hard Choices about life, free-from, you're continuing a state of arrested development by letting someone else serve you "Life, Version: AmeriCorps Teacher" on a platter.

If that's the CHOICE you want to make, that is fine, but it needs to be conscious and with open eyes toward what you are trading away.

Shieldmaiden

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Re: Reader Case Study- pay off loans or save?
« Reply #16 on: May 24, 2017, 11:59:45 AM »
@surfhb:

I'm teaching right out of college. The only experience I have is free English classes my professor offered for the community.

@Bracken_Joy

There's probably at least some truth to that. The biggest appeal, for me, is getting out of mom's apartment. The driver's license was literally a job requirement since we need to drive vans. Even if I didn't need it for this particular jobs, many of the places I applied to early this year wouldn't even consider me if I didn't have one.

I'm not entirely sure what you're getting at by the 'on the platter' comment, or what you mean by "Hard Choices". I know I'm accepting a job with long hours (although not as long as I've worked before) and low pay, and I unless I move on to administrative work, I won't be here longer than two years. I do have other plans I'm working toward on the backburner.

westtoeast

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Re: Reader Case Study- pay off loans or save?
« Reply #17 on: May 24, 2017, 12:03:55 PM »
Hi there,

I don't have much new advice to add, but I did the same thing you are doing when I graduated college. I did an AmeriCorps teaching position that paid $12,000 (gross) and $200 food stipend per month. I was also paying for my own housing in an expensive city. I deferred my loans because there was no way I was meeting my minimum payments.

Yes, you will be busy, but if you are at all able to get a second job you should. I worked 3 nights a week as a cashier and it was the only way I got by. Just be aware that some AmeriCorps programs (not all) state that you cannot have a second job. In this case, if you don't want to risk getting caught, you could try finding some under the table tutoring clients to bring in some extra money. I know someone on this site was promoting VIPKID which is an online teaching English site. I also know people who make decent side money walking dogs with Rover.

If you are earning $450 and paying $344 in loans, you are attempting to live off of $100 a month. Some of that will inevitably be eaten up by things like bus fare and toiletries. The only way you will really save this year is with the second job.

Despite all this, I still think doing an AmeriCorps service year is a great idea if you want to go into teaching or non-profit work. My year of service directly led to a full-time position with my organization and gave me the experience I needed to get into a good graduate program. Just don't get duped into doing multiple years!

Shieldmaiden

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Re: Reader Case Study- pay off loans or save?
« Reply #18 on: May 24, 2017, 12:36:28 PM »
@westtoeast

Thank you for your input and advice, it's great to hear from someone who was in a similar position. I just found out there will be loan forbearance for at least the duration while I work there. There is also the additional 91 if I manage to live off 4/day for food.

 

Wow, a phone plan for fifteen bucks!