Author Topic: Student Loan Hell  (Read 11024 times)

Foster

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Student Loan Hell
« on: June 24, 2013, 08:13:12 PM »
Hi Mustachians,

I'm very new here and absolutely love the site/philosophy/way of life. However, today I received a huge blow to my confidence and self esteem about FI because I realized I have about $70,000 in student loans and the interest is not deferred. I graduate from undergrad next year (I'm 22) and am confident that I will get a job paying $40-$55k in salary, but that 70+ thousand is a huge black cloud hanging over me.

Since I haven't even graduated yet and am stuck fucking around with part time jobs just to pay for rent, my request is more psychological/emotional advice at this point. How did you look at your massive loans and decide to kick their ass?

What motivated you to work everyday just to pay back a freakin' loan, how did you not get discouraged, what did you do to make sure it got paid as fast as possible, etc.

I know that I'm going to apply Mustachian Principles to my fullest to pay this sucker off, but right now I just need a cyber pat on the back, so to speak.


Best,

Bill

destron

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Re: Student Loan Hell
« Reply #1 on: June 24, 2013, 09:33:20 PM »
The most important thing IMO is to begin tackling those student loans NOW, not later. I know you don't have the money at the moment to make payments, but you can begin to tackle them by not spending money unnecessarily right now. Begin your mustachian lifestyle immediately and keep it up once you start working. This means cook your own food, minimize transportation costs and _think_ before you buy. You will then be in a good place to tackle all that student debt (beginning with the highest interest rate debt) as soon as you start working. Many people have done it before and you can do it too.

NWstubble

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Re: Student Loan Hell
« Reply #2 on: June 25, 2013, 12:12:32 AM »
www.youtube.com/watch?v=1Y6kTsBNH78

+1 to starting immediately.

simonsez

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Re: Student Loan Hell
« Reply #3 on: June 25, 2013, 07:57:15 AM »
There are lots of existing threads about this.  If you want more details, try searching through those or ask here or feel free to pm me.

Generally, once you are firmly in the pay-them-back-ASAP boat (some opt for debt forgiveness programs which usually take longer) you will want to NOT consolidate so you can optimize your extra payments on the higher interest loans.  Hold or decrease consumption and throw every increase in income at your loans, in order of interest rate.  Read the details on your loans if they are public or private and figure out a repayment plan that optimizes your ability to reduce the principal and the interest paid over the life of the loan.

I'll go ahead and be slightly contrarian to the starting immediately camp.  It isn't a bad idea by pure financial means, just do whatever is best for you considering all factors (you might come to the same conclusion to start repayment ASAP or you might not).  When I took out loans, I was making a deal with the government and more importantly, myself that they would be paid back at the expense of tomorrow.  I lived a comfortable life in college and even the period I was unemployed after grad school was a Dustin Hoffman-esque summer akin to The Graduate and I have no regrets about that (minus any affair or running away on a bus, more so the lounging in the pool with some rounds of golf thrown in).  In the grand scheme of things, I'm okay with paying back a couple thousand more so than I would've had I taken out less or started repaying immediately.  I'm burning through principle now like nobody's business and am all for destroying debt now but I'm at peace for how I lived with regard to my student loan debt during and shortly after my college days and have no regrets about it.  My plan* still beats the standard 10 year plan by 4 years and that very well may be below average on this website but it works for me.  YMMV.

Thinking about trips I want to experience, owning a house one day, and having children keep me plenty motivated to pay down the debt.  The whole process of making extra payments and seeing how much is attributed to principal literally gets me high.  There are few feelings like that.  I've made a $100 extra payment that totally turned around my day (I made the payment because I was having a crummy day).  Tracking your progress is important and keeps you accountable.

Good luck! (gives cyber pat on the back)

*my plan involves not paying back all student debt ASAP as I have two loans with a 2.14% interest rate.  Those can ride for awhile.

Rebecca Stapler

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Re: Student Loan Hell
« Reply #4 on: June 25, 2013, 08:15:02 AM »
We're dealing with a high student loan debt right now, and it's discouraging to work just to see a big chunk of paycheck go to the loans. THAT'S our motivation to get them paid off ASAP -- with a caveat. Sometimes it makes sense to keep them around. In our circumstances, we get loan repayment assistance on one loan, so it will be the last to go. If your interest rates are super low and you are good about investing your savings, then you may want to forgo repayment of loans under 3% interest. That said, you can still battle them by:

- Reduce your spending now.
- Make a plan for after graduation that allows you to live with the lowest expenses possible. Can you move in with your parents for a year or two?
- Pay off all accrued interest before those suckers go into repayment and capitalize. So, even though you'll have a grace period after graduation, make payments.
- When you have money over and above the accrued interest (prior to repayment) or the monthly payments (once you're in repayment), put it towards the highest interest loan first. Do it every month, before you have a chance to spend the "extra" money.
- You may want to put all the loans on the repayment plans that require the lowest monthly payments. Only pursue this method if you are going to pay everything you have to get rid of those loans. Don't go for a low repayment plan for the long term. But if you'll throw your "extra" money towards those loans on a regular basis, you will be able to knock those loans out more easily if you have more "extra" money, and having a low monthly payment will give you more "extra" money.   (it's not "extra" money, but you know what I mean -- it's money that doesn't go towards your fixed expenses)

mgreczyn

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Re: Student Loan Hell
« Reply #5 on: June 25, 2013, 08:16:14 AM »
Try building a loan amortization schedule for your loan(s) in Excel.  You can google how to do that, it's fairly straightforward, though federal student loans amortize in a slightly different way then your average consumer or mortgage loan and this can be somewhat confusing.  This will do 3 things:
1. Give you an intimate understanding of the debt you owe, and once you understand your enemy you are better equipped to defeat it.
2. Show you how much you will pay in interest if you do NOT pay them down ASAP (negative reinforcement)
3. Allow you to see how much you could save if you DO start immediately (positive reinforcement)

I did this for the 55,000 student loan I had not that long ago.  The realization that paying them off on my timeline instead of MOHELA's timeline would save me $40,000 provided a good hard kick in the ass.

mgreczyn

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Re: Student Loan Hell
« Reply #6 on: June 25, 2013, 08:45:01 AM »
Building a spreadsheet seems really wonky, and you do have to (briefly) geek out on accounting.  But, it's something active you can do and it will help you justify even the smallest effort.  Going back to my loan as an example, $55,000 seems like a really big number, and on the face of it putting an extra $10, $25 or even $100 towards it seems laughable, right?  But, looking at my payment schedule, if I let the loan run it's course I wind up paying $58,382 in interest over the life of the loan, on top of the $55k I actually borrowed.  I set the spreadsheet up so I can stick an extra payment in there to see what happens.  What I instantly learned is that extra money paid off in the first year of the loan is a quick triple-your-money investment.  At my interest rate (6.8%) every extra dollar put to that loan created $3.30 in interest savings.  An extra $10 in the first month saved me $33.  Boom, sorry Starbucks your lattes ain't THAT good.  $25?  That's really $85.  Boom, now I'm taking my lunch every day instead of going out.  $100?  Actually, that looks more like $333 to me.  Comcast, you're fired. 

Rebecca Stapler

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Re: Student Loan Hell
« Reply #7 on: June 25, 2013, 10:01:40 AM »
Building a spreadsheet seems really wonky, and you do have to (briefly) geek out on accounting.  But, it's something active you can do and it will help you justify even the smallest effort.  Going back to my loan as an example, $55,000 seems like a really big number, and on the face of it putting an extra $10, $25 or even $100 towards it seems laughable, right?  But, looking at my payment schedule, if I let the loan run it's course I wind up paying $58,382 in interest over the life of the loan, on top of the $55k I actually borrowed.  I set the spreadsheet up so I can stick an extra payment in there to see what happens.  What I instantly learned is that extra money paid off in the first year of the loan is a quick triple-your-money investment.  At my interest rate (6.8%) every extra dollar put to that loan created $3.30 in interest savings.  An extra $10 in the first month saved me $33.  Boom, sorry Starbucks your lattes ain't THAT good.  $25?  That's really $85.  Boom, now I'm taking my lunch every day instead of going out.  $100?  Actually, that looks more like $333 to me.  Comcast, you're fired.

I am so happy to see I'm not the only person doing this! I set our loans up so I can see how paying them off cuts them down, and it gives me a timeline. When I add in an extra payment, it makes me so happy to see the balance get to zero a month sooner!

Kaytee

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Re: Student Loan Hell
« Reply #8 on: June 25, 2013, 10:44:45 AM »
You are not alone (a loan?). I am a little far along than you, having started with $107K of debt (~$80 of student loans), and currently at $50k. I set all my loans at the lowest possible payment amount, then used the "excess" money in my budget to target one loan at a time for annihilation. Setting small target goals made this actually exciting, especially in the early days when I still had upper $90k still to go. I spent and spend a lot of time messing around with spreadsheets. We have equivalent incomes, so it is doable. Keep in mind that you will get raises and that will help pay things off more quickly. Seven years after I started working I am making $15K more per year then I was when I started. One of the things I did do in the beginning was save up a $10k emergency fund and that has helped me to weather many potential financial storms while paying down debt.

hoodedfalcon

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Re: Student Loan Hell
« Reply #9 on: June 25, 2013, 10:52:34 AM »

I am so happy to see I'm not the only person doing this! I set our loans up so I can see how paying them off cuts them down, and it gives me a timeline. When I add in an extra payment, it makes me so happy to see the balance get to zero a month sooner!

Does anyone have one of these spreadsheets they would be willing to share? I am very, uh, clueless about setting up amortizations, etc...

mgreczyn

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Re: Student Loan Hell
« Reply #10 on: June 25, 2013, 11:17:47 AM »
This link has step by step instructions for excel: http://support.microsoft.com/kb/816643

The standard table is set up for monthly amortization.  The interest payment for this month is calculated by multiplying your monthly rate (see "how to convert an annual rate to a monthly rate") multiplied by the principle left at the end of last month.  The monthly payment never changes, but the amount that goes to interest starts high and declines through the life of the loan, the inverse happens for the amount that goes to principal.  That's the insidious thing about loans, you pay the bank before you pay off the loan.  Anyhow, student loans amortize daily, so you have to use something called an "interest rate factor".  All this really is is the annual rate converted to a daily rate (not the same thing as dividing by 365).  For the type of loan I had (Federal unsubsidized graduate loan) it was .000187613... or something.  So you take the number of days in a month times the interest rate factor times the balance at the end of last month to get the interest for this month.  It makes the spreadsheet a little more involved, but do-able.

Student loans will rock your world if you let them get out of control. 

Foster

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Re: Student Loan Hell
« Reply #11 on: June 26, 2013, 01:43:48 PM »
Just want to thank you guys for the incredible insight and experience with this. Googling "pay off student loans", I was just browsing through absolute garbage like Top 10 lists- this is why this site and forum are so helpful.

Simonsez, thanks for sharing your philosophy on this issue- I like that idea of thinking in the big scheme of things, makes it a little less of a burden.



- Reduce your spending now.
- Make a plan for after graduation that allows you to live with the lowest expenses possible. Can you move in with your parents for a year or two?
- Pay off all accrued interest before those suckers go into repayment and capitalize. So, even though you'll have a grace period after graduation, make payments.
- When you have money over and above the accrued interest (prior to repayment) or the monthly payments (once you're in repayment), put it towards the highest interest loan first. Do it every month, before you have a chance to spend the "extra" money.
- You may want to put all the loans on the repayment plans that require the lowest monthly payments. Only pursue this method if you are going to pay everything you have to get rid of those loans. Don't go for a low repayment plan for the long term. But if you'll throw your "extra" money towards those loans on a regular basis, you will be able to knock those loans out more easily if you have more "extra" money, and having a low monthly payment will give you more "extra" money.   (it's not "extra" money, but you know what I mean -- it's money that doesn't go towards your fixed expenses)

Excellent tips as well. I'm actually planning on getting a job in NYC and commuting from my parents home in NJ. I love fooling around with Excel so I'll be building a few amortization spreadsheets.

As I said in the first post, I haven't graduated yet so only the foundation of this plan can be laid. However, I anticipate this blog to be up and running for years to come so I will absolutely check in with progress reports.

Again, thank you!

Numbers Man

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Re: Student Loan Hell
« Reply #12 on: June 26, 2013, 02:20:11 PM »
A $70k loan at a 7.9% interest rate payable in 10 years after a 6 month grace period from graduation is $850 a month in round numbers. That's assuming that your debt will be $70k when you graduate. If you took out a grand total of $70k it could be much more because interest is accruing (accumulating on your principle amount) every month.

A $40k salary with state (approx $2k), federal (approx $4k) and social security (7.65% of gross pay) taken out would be approximately $9k per year so you are left with $2,583 a month to live on.

You can knock this loan out by paying an extra $1,200 (about $2,050 per month) a month in 4 years. It doesn't give you any money to party but I'm sure your parents will let you live with them rent free if they see you aggressively paying down this loan. And don't forget, you'll be making more money down the road.

Foster

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Re: Student Loan Hell
« Reply #13 on: June 26, 2013, 06:19:42 PM »
A $70k loan at a 7.9% interest rate payable in 10 years after a 6 month grace period from graduation is $850 a month in round numbers. That's assuming that your debt will be $70k when you graduate. If you took out a grand total of $70k it could be much more because interest is accruing (accumulating on your principle amount) every month.

A $40k salary with state (approx $2k), federal (approx $4k) and social security (7.65% of gross pay) taken out would be approximately $9k per year so you are left with $2,583 a month to live on.

You can knock this loan out by paying an extra $1,200 (about $2,050 per month) a month in 4 years. It doesn't give you any money to party but I'm sure your parents will let you live with them rent free if they see you aggressively paying down this loan. And don't forget, you'll be making more money down the road.

Well that's depressing...but enlightening in a way? Thank you for showing that.

What was your method for calculating that? I'd like to try some numbers out myself.

hoodedfalcon

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Re: Student Loan Hell
« Reply #14 on: June 26, 2013, 08:17:14 PM »
This link has step by step instructions for excel: http://support.microsoft.com/kb/816643

The standard table is set up for monthly amortization.  The interest payment for this month is calculated by multiplying your monthly rate (see "how to convert an annual rate to a monthly rate") multiplied by the principle left at the end of last month.  The monthly payment never changes, but the amount that goes to interest starts high and declines through the life of the loan, the inverse happens for the amount that goes to principal.  That's the insidious thing about loans, you pay the bank before you pay off the loan.  Anyhow, student loans amortize daily, so you have to use something called an "interest rate factor".  All this really is is the annual rate converted to a daily rate (not the same thing as dividing by 365).  For the type of loan I had (Federal unsubsidized graduate loan) it was .000187613... or something.  So you take the number of days in a month times the interest rate factor times the balance at the end of last month to get the interest for this month.  It makes the spreadsheet a little more involved, but do-able.

Student loans will rock your world if you let them get out of control.

Thanks! I might have to do some tinkering, but hopefully I can figure it out!

MrsPete

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Re: Student Loan Hell
« Reply #15 on: June 27, 2013, 06:39:36 AM »
You've already received good advice, but I'll add a story:

I had a good friend in college who had a similar "wake up" moment like you . . . but his occured late in his sophomore year.  He had taken out loans -- not massive loans, but enough that they were going to affect his future, and he realized he'd made a mistake.  That summer -- between our sophomore and junior year -- he got two jobs.  His first was driving a bread truck and stocking grocery store shelves.  His second was working the night shift at a convenience /gas store.  In previous summers he'd worked part-time as a lifeguard, allowing plenty of time for sleeping late, then sitting around watching girls in bikinis.  He claimed that summer he never saw the sun; he just worked and worked hard.  But when the summer was gone, he no longer had student loans.  Back to school in the fall, he stayed in the dorms instead of moving to an apartment as he'd planned, he started working part-time during the school year, started being careful about his spending -- and he found that he didn't need to borrow.  Nothing but respect for his choices! 

As for you, you're already in the college where you're going to stay for your senior year, so finding less expensive tuition options isn't realistic, but be sure you're spending as little as possible for your housing and food -- those choices will still exist.  If you can't avoid borrowing, at least make it the very least amount you can borrow. 

A couple other things you can do NOW to prepare yourself for the 2-3 years that you're going to essentially work to give your money away:

- The job-hunting world can be brutal these days.  Keep your eyes open for on-campus workshops about resume writing, interview skills, etc.  They're probably free.  Attend all job fairs offered by your college.  Do not wait 'til the last minute to begin these tasks.

- How will you be expected to dress for your job?  Start perusing consignment shops and clearance tables now in search of professional clothing you could wear in your first couple years of employment.  You cannot expect to walk in and find a whole professional wardrobe in an afternoon -- not at sale or used prices.  So start collecting inexpensive items now . . . so that the week before your first day on the job, you won't find yourself staring at a closet full of holey jeans and hoodies. 

- Are you working now during college?  If not, why? 

- Living at home with your parents after graduation will help you pay down the loans quickly, and the desire to get your own place could be a constant motivator.   



Foster

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Re: Student Loan Hell
« Reply #16 on: June 27, 2013, 09:03:37 AM »
You've already received good advice, but I'll add a story:

I had a good friend in college who had a similar "wake up" moment like you . . . but his occured late in his sophomore year.  He had taken out loans -- not massive loans, but enough that they were going to affect his future, and he realized he'd made a mistake.  That summer -- between our sophomore and junior year -- he got two jobs.  His first was driving a bread truck and stocking grocery store shelves.  His second was working the night shift at a convenience /gas store.  In previous summers he'd worked part-time as a lifeguard, allowing plenty of time for sleeping late, then sitting around watching girls in bikinis.  He claimed that summer he never saw the sun; he just worked and worked hard.  But when the summer was gone, he no longer had student loans.  Back to school in the fall, he stayed in the dorms instead of moving to an apartment as he'd planned, he started working part-time during the school year, started being careful about his spending -- and he found that he didn't need to borrow.  Nothing but respect for his choices! 

As for you, you're already in the college where you're going to stay for your senior year, so finding less expensive tuition options isn't realistic, but be sure you're spending as little as possible for your housing and food -- those choices will still exist.  If you can't avoid borrowing, at least make it the very least amount you can borrow. 

A couple other things you can do NOW to prepare yourself for the 2-3 years that you're going to essentially work to give your money away:

- The job-hunting world can be brutal these days.  Keep your eyes open for on-campus workshops about resume writing, interview skills, etc.  They're probably free.  Attend all job fairs offered by your college.  Do not wait 'til the last minute to begin these tasks.

- How will you be expected to dress for your job?  Start perusing consignment shops and clearance tables now in search of professional clothing you could wear in your first couple years of employment.  You cannot expect to walk in and find a whole professional wardrobe in an afternoon -- not at sale or used prices.  So start collecting inexpensive items now . . . so that the week before your first day on the job, you won't find yourself staring at a closet full of holey jeans and hoodies. 

- Are you working now during college?  If not, why? 

- Living at home with your parents after graduation will help you pay down the loans quickly, and the desire to get your own place could be a constant motivator.   

I truly appreciate your advice, although your friend's story of working during the summer to pay off loans sounds like its from 1965. Trust me, I work 30 hours a week during classes and full time whenever I'm not in classes. Reality of the situation is $10-$13/hr jobs will not do much except cover the cost of living in Boston, let alone a $45,000 per year tuition. Not complaining, but 18 year old me should've thought twice about Rutgers or TCNJ!


homeymomma

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Re: Student Loan Hell
« Reply #17 on: June 27, 2013, 03:31:20 PM »
Cyber pat on the back for facing the situation head on! I remember my loans went into penalties months after I graduated because I didn't even know enough about them to know how to access my accounts online! That's what happens when you let your 18 year old self make decisions and sign promissory notes for you...

Anyway! I think you can look at it many ways, but one that has helped my husband and I pay down almost 30K in debt, while saving over 1/4 of our paycheck toward retirement each month (single salary, AND we have a baby) is to look at all that money coming in and see how much you can do with it if you don't spend it! In your case, you'll see 70K in salary come into your hands within two years, of not sooner. Now, of course there will be expenses like food and clothes and transportation, but if you try to remember that every penny you don't spend unnecessarily is money that stays with you to do good (in this case paying off debt), it will seem like less of a burden and more of a challenge. Living at home for a while is a GREAT plan. And I'd offer to do odd jobs and chores around the house in exchange, so you can avoid having to contribute financially.
You clearly have a great work ethic, if you're already working 30 hours/week during school - so maybe side jobs would be a possibility for you? Also, selling things you no longer need can be a nice source of cash, when your lifestyle changes from student to working professional you may find you no longer need some things.

Also, I totally agree with your comment about a summer job (or two) being able to pay a year's worth of tuition. Private school tuition of about 40K, three months of work making 40K? What kind of 160K/year paying jobs hire summer college workers? I don't think so! LOL

Good luck! Look at them one at a time and SO PROUD of yourself when you pay off the first one. It will be a huge accomplishment.

Also, I'm not a spreadsheet person, but I do think the little tool in Mint to make a goal for loan pay off is cool. You can raise your monthly contribution past the minimums and it will show you how much interest you will save. Now there's motivation!

Chowder

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Re: Student Loan Hell
« Reply #18 on: June 27, 2013, 04:11:11 PM »
Try this spreadsheet, it was a big help to me and it has already done all of the hard work for you.

Someone mentioned spreadsheets so I figured I'd post the one I use for planning:
http://www.vertex42.com/Calculators/debt-reduction-calculator.html

I also have one that tracks actual balances/payments.  $110,841.35 to go not counting 2 mortgages ($356k, both under water) :(

I think I calculated that if we never changed our lifestyle beyond getting rid of the various debts, we would put away $44-50k a year easy.  Its so far away though.

Thank you! I've had a hard time finding a spreadsheet/calculator that would allow me to incorporate my bonuses as "snowflake payments" to get a real interpretation of my pay off date. January 2017 it is...

snshijuptr

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Re: Student Loan Hell
« Reply #19 on: June 27, 2013, 08:51:33 PM »
Start looking for a job now!! Work a low paying internship if you have to in order to secure a job after graduation! Use your career center as MrsPete said. Tell everyone you know what you want to do with your life after college and that you are willing to start work now to learn the skills after you graduate.

MrsPete

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Re: Student Loan Hell
« Reply #20 on: June 29, 2013, 06:49:40 PM »
I -- and my friend whose story I repeated -- were not yet born in 1965.  We were in college in the mid-1980s, when college tuition was much more affordable . . . But minimum wage was $3.35/hour.   Of course, we also live in the low-cost-of-living Sourh.

You've already received good advice, but I'll add a story:

I had a good friend in college who had a similar "wake up" moment like you . . . but his occured late in his sophomore year.  He had taken out loans -- not massive loans, but enough that they were going to affect his future, and he realized he'd made a mistake.  That summer -- between our sophomore and junior year -- he got two jobs.  His first was driving a bread truck and stocking grocery store shelves.  His second was working the night shift at a convenience /gas store.  In previous summers he'd worked part-time as a lifeguard, allowing plenty of time for sleeping late, then sitting around watching girls in bikinis.  He claimed that summer he never saw the sun; he just worked and worked hard.  But when the summer was gone, he no longer had student loans.  Back to school in the fall, he stayed in the dorms instead of moving to an apartment as he'd planned, he started working part-time during the school year, started being careful about his spending -- and he found that he didn't need to borrow.  Nothing but respect for his choices! 

As for you, you're already in the college where you're going to stay for your senior year, so finding less expensive tuition options isn't realistic, but be sure you're spending as little as possible for your housing and food -- those choices will still exist.  If you can't avoid borrowing, at least make it the very least amount you can borrow. 

A couple other things you can do NOW to prepare yourself for the 2-3 years that you're going to essentially work to give your money away:

- The job-hunting world can be brutal these days.  Keep your eyes open for on-campus workshops about resume writing, interview skills, etc.  They're probably free.  Attend all job fairs offered by your college.  Do not wait 'til the last minute to begin these tasks.

- How will you be expected to dress for your job?  Start perusing consignment shops and clearance tables now in search of professional clothing you could wear in your first couple years of employment.  You cannot expect to walk in and find a whole professional wardrobe in an afternoon -- not at sale or used prices.  So start collecting inexpensive items now . . . so that the week before your first day on the job, you won't find yourself staring at a closet full of holey jeans and hoodies. 

- Are you working now during college?  If not, why? 

- Living at home with your parents after graduation will help you pay down the loans quickly, and the desire to get your own place could be a constant motivator.   

I truly appreciate your advice, although your friend's story of working during the summer to pay off loans sounds like its from 1965. Trust me, I work 30 hours a week during classes and full time whenever I'm not in classes. Reality of the situation is $10-$13/hr jobs will not do much except cover the cost of living in Boston, let alone a $45,000 per year tuition. Not complaining, but 18 year old me should've thought twice about Rutgers or TCNJ!
« Last Edit: June 29, 2013, 06:52:05 PM by MrsPete »