Author Topic: Case Study: Help a student get less debt  (Read 3875 times)

OctaviusIII

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Case Study: Help a student get less debt
« on: January 17, 2016, 10:37:08 AM »
Here's my situation: I'm a married 31-year-old in a first-year program for a city & regional planning master's degree. Wife is a college professor. We're currently net-negative on our income, so I'm still taking out loans for school. The only job my wife could find near Ithaca is in Binghamton, an hour's drive away, so we held our nose and bought a car. This commute won't be so bad next semester - rather than 5 days a week on campus, she'll only have to drive 3. My commute to campus is free thanks to walking and a school-provided bus pass. Here's what our structure looks like for the next year and a half:

NamePrincipalInterestOrigination FeeInterest Accrues While Deferred?
Fall 2016 Perkins$4,0005.00%0%No
Fall 2016 Stafford$10,2505.84%1.068%Yes
Spring 2016 Perkins$4,0005.00%0%No
Spring 2016 Stafford$10,2505.84%1.068%Yes
Spring 2017 Perkins$4,0005.00%0%No
Spring 2017 Stafford$10,2505.84%1.068%Yes

Our existing loans are:
NamePrincipalInterestInterest Accrues While Deferred?
My PLUS$6,7856.84%Yes
My Unsubsidized Stafford$10,4945.84%Yes
Wife Sub Stafford$5,7946.8%n/a
Wife Unsub Stafford$5,4156.8%n/a
Car Loan$9,2176.79%Yes
Parental Loan$33,0005%No
IRS$9,3601.3%n/a

And our structure looks like so:

Assets
Asset NameAmount
My Checking$466.28
Wife Checking$3,526
Emergency Fund$1,953
Adoption Seed Fund$2,000
401k$6,493

CategoryMonthly
Comments
Annual
Salary/Wages for person #1$3,333$40,000
Salary/Wages for person #2$1,941$23,296
457 plans   $117Room to increase?$1,400
Employer Match$283$3,400
Income subject to IRS tax$5,158$61,896
Union dues$33$390
Paycheck income before tax$5,125$61,506
Schedule C net profit$150$1,800
Federal Total Income$5,308$63,696
Federal tax$5102015 rates, MFJ, stand. ded., 1 exempt.$6,123
State/City tax$131Guess, using 3.35% * Fed. Taxable$1,574
Soc. Sec.$327Assumes 2 earners paying$3,924
Medicare$76$918
Self-employment Tax$21$254
Total income taxes$1,045$12,539
Untaxed Income$267$3,200
Income before other expenses  $4,497$53,967
Monthly Average Expenses:
Rent$1,563$18,750
Car Insurance$64$768
Car Maintenance, Registration, etc.$104A set-aside$1,252
Clothing/Shoes$10$120
Dining (Pizza, Restaurant, etc.)$302Face-punch goes here$3,629
Electricity$35$420
Emergency Fund$100$1,200
Entertainment$10$123
Financial Fees$3$36
Fuel/Public Transport$130$1,559
Groceries$472Amount is falling$5,665
Hair Care$7$80
Internet$30$360
Medical (Doctor, Hospital, etc.)$218Includes prescriptions$2,619
Miscellaneous$351$4,215
School Tutition/Books/Etc.$2,834$34,008
Travel/Vacation$110$1,326
Total$6,360$76,319
Loan payments:
Wife's Stafford Loan$251$3,007
Car Loan$207$2,479
IRS$130$1,560
Total Expense$6,948$83,360
Net Income-$2,451-$29,409

Basically, we'd be at even without school, which is why the future loans. We are looking at doing other forms of income next semester, like Air BnB, and we're trying to cut down on groceries and the miscellaneous shopping that happens. We don't have to pay my Stafford or PLUS loans yet, so we haven't been. Even if we cut everything except for rent, school, and car, we'd still be negative. If we cut rent in half, we'd have $220 a month for food.

My spring Stafford and Perkins loans aren't here yet, but we don't have enough money to cover tuition so they're in the bag. We've maxed out our student loan interest payment deduction for the year already thanks to the parental loan which we got in January rather than in December - would have been nice to split it up, but the idea didn't come to us until this month - and are looking now for ways to ensure our debt load stays roughly neutral.

With the hair-on-fire situation we're in, it looks like we've been living way beyond our means, especially with regards to "miscellaneous" and food. We need some help.

Updates:
 - Expected income from the degree is about $60k per year to start, with upward mobility of up to $125k. I plan to work in the for-profit sector doing consulting work in the developing world.
 - I'm planning on boosting map sales, which could add to income, though nowhere near enough to make up the hole without serious cuts. Summer internship employment should help.
 - Rent is high because the Ithaca housing market is awful. Air BnB should help, and we will start looking for somewhere new come summer.
 - Miscellaneous does need to get tracked more closely, and I'm starting that this week. This case study is based off the last three months' worth of spending, so we no longer have the receipts from, say, CVS or wherever. I'll also start tracking our groceries a bit more closely. Wife is wheat-allergic and effectively prediabetic, which raises our food costs away from stuff with a lot of carbs.
 - My income includes 10 hours a week part-time at $31 and hour, plus $7200 per year from grad school TAing.

I combined College and School Expenses into one category. Breaking that down, we get:
 - Adobe Subscription, $48.13. Includes Illustrator and Acrobat.
 - Microsoft Office, $7.55
 - Books, paper, printer ink, $105. Some of this might be household goods bought via Amazon.com but not tracked properly.
 - Tuition & fees, $2,673

Looked closer at financial fees and found that my car registration was miscategorized. It should be $3, which is an ATM fee.
« Last Edit: January 18, 2016, 04:55:32 PM by OctaviusIII »

lhamo

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Re: Case Study: Help a student get less debt
« Reply #1 on: January 17, 2016, 11:10:52 AM »
If you are two people, why are you only taking one exemption on your federal taxes? 

Is there anything either you or she can do to get the income side of things up? 

What are "college costs" and why is that a separate category from school tuition/books/etc?

Miscellaneous at $350/month is very high -- you probably need to track more closely and should be able to get this down.

And yes, the restaurant spending needs to go.  And you can probably get your grocery bill lower as well.  And no vacations. 
You are in a hair on fire debt emergency.  You have $80k + in current debts, and are planning to take on nearly $45k more.  Your wife only makes $40k, and you are only making around $24k (presumably part-time?).  What will you make as a FT city planner?  Is your degree even worth what it is costing you?  Might be better to take a leave of absence, get a better paying job and kill some of the existing debt, and go back later.  If you weren't in school in Ithaca you could move to Binghamton, which would presumably reduce costs.

DebtFreeBy25

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Re: Case Study: Help a student get less debt
« Reply #2 on: January 17, 2016, 12:12:08 PM »
Are there any graduate assistantships that you could apply for? Your biggest expense by far is education. I would look into any and all ways to cut that cost down.

There are some small opportunities to make cuts in the groceries, miscellaneous and dining categories, but overall your budget is quite frugal. If reducing education expenses is in no way an option, then you have an income problem. Shaving a little money from your already frugal budget isn't going to make the big difference you need to not dig an even deeper debt hole.

justajane

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Re: Case Study: Help a student get less debt
« Reply #3 on: January 17, 2016, 12:31:29 PM »
What about your living situation? Why so high? Could you live in a studio or a smaller place?  You spend almost as much on food as we do for a family of five!  I would try to do something drastic here like becoming a vegetarian or something else that will drop your food budget dramatically.

On the education front, any chance to borrow books from someone else or rent them or check them out from the library?

You are in pretty dire straights financially. What's your plan moving forward? What's your projected income for this degree?

little_brown_dog

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Re: Case Study: Help a student get less debt
« Reply #4 on: January 17, 2016, 01:08:46 PM »
Ouch – obviously as you mentioned, the dining is the biggest facepunch. You are in no way able to blow 300 a month outside of groceries. You need to limit yourself to once or twice a month max, at reasonably priced restaurants (<$30 for 2 of you). No ifs, ands, or buts about this. If you limit yourself to $60/mo total, you will save $240 right there. That's more than your car payment!

Rent – seems very high for upstate NY.

Groceries – you need to stock up when there are sales on cheap but healthy bulk foods. Today at stop n shop there was a deal, 59c per box of whole grain pasta. Lentils and barley (for stews and soups) were on sale for 89c per pound, and 2lbs of brown rice was 2 for $3. I bought 6 boxes of pasta, 8lbs of barley and lentils, and 4lbs of brown rice. Total without tax was 13.66.

+1 about vegetarian eating – it will save you a bundle. Aim for cheap meals like soups and stews that use inexpensive veggies like onions, carrots, and celery which also keep well in the fridge.  Go for cheap protein sources like eggs and beans.  We live in a HCOL area and spend $350/mo on groceries, many of which are organic or other expensive specialty items like almond milk.

Travel/vacation – Sorry guys, but right now you can’t afford to save for travel, not when you aren’t even breaking even on your mandatory bills. Take this money and use it to help keep you out of the financial hole. The time for fun money comes later when you aren't in dire straights.

College costs and financial fees – what are these exactly?

OctaviusIII

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Re: Case Study: Help a student get less debt
« Reply #5 on: January 17, 2016, 01:23:45 PM »
Updated the study above with details. Thanks for the feedback so far. It's not reasonable for me to take a Leave of Absence to get the debt fire under control, unfortunately.

lhamo

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Re: Case Study: Help a student get less debt
« Reply #6 on: January 17, 2016, 01:46:48 PM »
Which of you has to be on campus every day?  Might it make more sense to move to Binghamton and have you be the one who commutes?

Your rate for the PT position is not that bad.  The TA-ing is a time suck and probably a much lower hourly rate.  Do you get other benefits with that?  If not, it might make more sense to up the hours at the PT job, if possible.

While you do have the TA job, try to do as much printing of papers, reference materials, etc on campus as you can.  Save the toner at home for real printing emergencies.  And see if you can get student rate subscriptions for the software (maybe those are student rates already -- I don't know what Adobe costs).


abhe8

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Re: Case Study: Help a student get less debt
« Reply #7 on: January 17, 2016, 02:14:06 PM »
I would work on the food costs, both grocery and eating out. Tons of low hanging fruit there. And then housing/comute. Ouch. How many days a week are you on campus? How many is she? Any online options, for either of you? Since you are commuting, live in the cheaper city, walking distance for one of you. Make a friend in the other town and couch sure a couple of nights a week. Or look for a house sitting job. Those costs are killer. Good news is it is only for a short while. So buckle down, live super cheap now, so you can enjoy your anticipated bump in salary with the new degree.

little_brown_dog

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Re: Case Study: Help a student get less debt
« Reply #8 on: January 17, 2016, 02:16:27 PM »
Ah I see your wife can't eat wheat - no worries. Go for the lentils, beans, and brown rice in lieu of pasta. Sometimes quinoa can be priced decently if you find it in bulk or on sale (can replace oatmeal or wheat based breakfasts). As for the prediabetes, check with her doc, but reasonable servings of high fiber legumes and grains are usually perfectly fine and very healthy for diabetics. The key is to go for the whole unprocessed foods, not the breads, pastas, tortillas, or other items. The fiber content in the whole grain or legume prevents the spike and crash in blood sugar commonly associated with low quality carbs from refined grains and sugar. The reason vegan/vegetarian diets are often recommended for diabetics is because they tend to be very high in fiber, and lower in calories than omnivorous diets. I guess what I'm trying to say is that food sensitivities and health conditions don't always have to equal an exorbitant grocery bill. Many times the healthiest diets aren't even that expensive if you are willing to do the grunt work of home cooking.

Tip: If you decide to go this route, spend Sunday or some other day off preparing big batches of your staples for the week. For example, cook up a few days worth of brown rice and quinoa on sunday and then store them in the fridge so they are ready to go during the work week. That way you aren't tempted to order take out to avoid the hassle of cooking rice for 40 min at 7pm on a Wednesday.



« Last Edit: January 17, 2016, 02:21:26 PM by little_brown_dog »

OctaviusIII

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Re: Case Study: Help a student get less debt
« Reply #9 on: January 17, 2016, 02:48:11 PM »
Good ideas on the food front. She's the mistress of the kitchen - it's her hobby - but I'm excited to see how I can help out with prep and buying cheaper food. Mostly we do our shopping at Aldi's and Ollie's Bargain nowadays.

As for the commute, it won't be so bad next semester - rather than 5 days a week on campus, she'll only have to drive 3. It's about an hour both ways (86 miles round-trip). My commute to campus is free thanks to walking and a school-provided bus pass.

justajane

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Re: Case Study: Help a student get less debt
« Reply #10 on: January 17, 2016, 02:48:55 PM »
In light of the dietary issues, here's what I would suggest.

Salad is a pretty cheap lunch, especially if you buy romaine and make that the base of the salad with some spinach and/or spring mix mixed in. Hard boil some eggs, cut a bunch of veggies at the beginning of the week and put it in containers, buy bags of pumpkin seeds or craisins (whatever floats your boat). Top with small amount of protein like turkey, rotisserie chicken, or tuna. If you prepare all of this at the beginning of the week in bulk and store in separate containers, you can build a salad in the morning and take it with you. With this method, you could have your lunches for both of you for the entire week for less than $20 or so dollars, or even less if you shop sales. I know at Aldi, I can buy enough greens to make at least four entree sized salads for about $5.   

Then for dinner you could either have a legume based dinner or a broth-based soup or stew, both of which would work with your wife's dietary restrictions. Like the other night, I made a pretty tasty dinner with a 50 cent can of black eyed peas, a 40 cent can of diced tomatoes, some spices, and $2.50 worth of frozen shrimp. There was even some left over for my lunch the next day.

To bring that grocery number down, you are going to have to be deliberate and calculate the cost of each meal. And you're going to have to embrace repetition. If you eat a meal you love that is cheap, plan to eat that once a week for a while.

As far as breakfast, bananas, eggs, and oatmeal are good choices. Bananas are so cheap and so filling. Make bananas and whatever fruit is on sale your primary snacks, even if your prediabetic wife can't. Also, carrots and hummus (super cheap and good at Aldi) for snacks.

And also recognize that deprivation doesn't have to be forever. Consider it an exercise. You might be surprised that it doesn't feel like deprivation after a while.

MDM

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Re: Case Study: Help a student get less debt
« Reply #11 on: January 17, 2016, 02:51:18 PM »
Is the school tuition in addition to the loan amounts, or are the loans paying for your tuition?

If "in addition", that implies you had a bank account (or similar) with at least $29K * (the number of years for the master's program) and are depleting that to pay the tuition - correct?  But there aren't any assets listed....

If the loans are paying for your tuition, you aren't in an immediate cash flow emergency.

OctaviusIII

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Re: Case Study: Help a student get less debt
« Reply #12 on: January 18, 2016, 05:11:58 PM »
Is the school tuition in addition to the loan amounts, or are the loans paying for your tuition?

Updated the OP with assets. Note that we haven't paid rent yet, so it'll be a bit on the high side. Yes, the loans are paying for tuition, so we aren't in any kind of cashflow emergency. I'm curious about how we can be less in the hole, but we'll be able to eke by even at current levels of spending.

MDM

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Re: Case Study: Help a student get less debt
« Reply #13 on: January 18, 2016, 06:26:19 PM »
Is the school tuition in addition to the loan amounts, or are the loans paying for your tuition?
Updated the OP with assets. Note that we haven't paid rent yet, so it'll be a bit on the high side. Yes, the loans are paying for tuition, so we aren't in any kind of cashflow emergency. I'm curious about how we can be less in the hole, but we'll be able to eke by even at current levels of spending.

You could have a discussion with the parents providing the loan.  You already know they are willing to provide a goodly amount, and that seems beneficial to all concerned: you get the education, they get 5% return in addition to knowing the investment is for a good cause. 

Discussion topic: how much are they willing to loan - just the amount for school, or an amount for school plus maximized 4xx retirement account contributions?  They may or may not want to loan that much, and you may or may not be comfortable taking on that much debt, so consider this a suggestion to get you thinking....

FreedomInc

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Re: Case Study: Help a student get less debt
« Reply #14 on: January 18, 2016, 10:06:25 PM »
I might be wrong on this, but I think your housing cost could be decreased significantly from 1500/month for two people.

Just looking at craiglist Ithica I see many options lower than that, some as low as 800/month for a one bedroom

https://ithaca.craigslist.org/search/apa

ShoulderThingThatGoesUp

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Re: Case Study: Help a student get less debt
« Reply #15 on: January 19, 2016, 09:14:29 AM »
Why are you paying these software subscriptions when all the zillions of computers in Carpenter Hall are available to you day and night?