Month 1: -$125,136.26
Can I tell you guys how HORRIBLE it feels to write that number out and see how much it is all added together? I have $125,136.26 in student loans. Here’s the thing, calling this “Month 1” is a misnomer. This is year 5 of payoff. And guess what? For the first 5 years of my student loan payoff I paid NONE of the principal balance on the Subsidized and Unsubsidized student loans, which makes up almost all of that balance. The remainder is my private bar exam loan.
The terrible news is that my principal balance of the government loans was $82,000 and the bar exam loan was 12,500. That’s only $94,500 of actual law school costs. Thanks a lot, bullshit interest rate on graduate level student loans. (Can I say BS here? I think it’s appropriate. I promise the rest of this post will be swear-word free.)
The great news is that now that I’m credit card and car debt free, I can take this debt by the horns and show it who’s boss!
Current Law School Student Loans Balances
Let’s break it down so that you can see what I’m dealing with here:
Subsidized Student Loan: $32,132.01 @ 7.125% Interest – Estimated Payoff Date: January 1, 2040*
Unsubsidized Student Loan: $84,007.21 @ 7.125% Interest- Estimated Payoff Date: April 1, 2041*
Bar Exam Student Loan: $8,997.04 @ 7.5% Interest – Estimated Payoff Date: March 1, 2025
*My law school student loans are covered by the REPAYE Plan. This means any remaining balance will be forgiven in or around 2036. I don’t know this exact date because of different forbearances, but I started making payments in 2011 (the delay was due to loan servicer errors in processing – big surprise) and will be 25 years after that. I am calculating the date without forgiveness to see the difference extra payments make. This is one of my favorite things to check on my home loan after making even tiny extra payments every month.
I’m still bitter about those interest rates because they went up right before I started and they’re based on nothing but a random number picked by the government. If the government wants to know why my generation is behind on basically everything, it’s because they said we all had to go to college and then forced us to pay insane interest rates. I escaped undergrad with no student loans, and I earned a half tuition scholarship for law school. Then I did work study where I worked instead of taking some of the cost of living student loans. (Click here to read more about my specific law school path in a new tab.) To get out of law school at a private university with only $82,000 was a huge blessing. I recognize that. But it’s still REALLY overwhelming to see that balance every time I check my finances.
I used to say it was hopeless and I’d pay these loans until they were forgiven 25 years after 2010. But now I see light at the end of the tunnel! There is hope! I refuse to pay 25 years of interest on the worst three years of my life. Especially because I was 24 when I graduated from law school, meaning it is expected that it will take longer to pay for law school than I was alive when I finished law school. Ridiculous! (For more recent law grads, the loans are forgiven after 20.)
Some of you may wonder why my current balance is so much higher than the balance at graduation. That’s because of income based repayment plans. I graduated at one of the worst possible times for lawyers. The year later was even harder. But the great recession impacted the legal field just like everyone else. (Never believe anyone who says you should go to law school because people always need lawyers. That’s true. But you know what else people need? Money to pay lawyers. When there’s no money to pay lawyers, then you get to do a whole lot of work for free, or low-bono, or in a totally different field of work just to pay your bills.)
By the way, the people who tell you that all lawyers make a ton of money and you’ll never have to worry about paying back your loans because you’ll be rich are also wrong. Or liars. Pick your adjective. And you can probably apply that advice to all kinds of careers, for good measure.
What is a Bar Exam Loan?
The bar exam loan was to pay for the cost of BarBri, the only bar exam preparation course in Nevada in 2010 (roughly $4,000), the video iPod I had to buy to take my classes remotely because I took a clerkship in the middle of nowhere and back then there wasn’t reliable online streaming (roughly $200 I think?), the cost of applying for the bar exam (roughly $1,000), the cost of moving to a different state in the middle of nowhere (roughly $1,000), my apartment deposit and first month’s rent (roughly $1,200), oh and my two best law school friends got married during bar prep/the week after the bar exam and I flew to both their weddings/stayed in hotels/etc (roughly $800 – totally worth it), and then the cost of living for 2.5 months while I studied for the exam. I worked part time while I took the bar exam. I don’t recommend this, but remember, the economy sucked and I had to take the job I was offered. That job required me to start three days after graduation. At the end of the exam period, I had a little bit of money left over, and I used it to pay a super high interest rate credit card I’d gotten to buy furniture. Thankfully, I have made some progress on this loan and it’s at a decent balance now to feel like I can conquer it!
The Bar Exam Loan is a separate, private loan on a regular repayment plan. I always had it in my head that it was a 10 year loan, but now that I’ve done the amortization schedule, that can’t be true. (Yes, I just now realized this. That’s why it’s important to LOOK AT your debts, even if they make you want to vomit.) It has never been on a specialized, income based repayment plan. I used to pay $10 more than the minimum, and then in December, the bank would tell me I paid ahead and didn’t need to make a payment. Rather than make a responsible choice to call and have the extra payments go toward principal rather than the next payment, I just used it as an excuse to have an extra $120 toward Christmas presents. Don’t be like me. Thankfully, that bank changed their policy awhile ago, and they don’t apply extra payments to the next month’s bill anymore. They automatically go straight to outstanding interest (I already pay that in the monthly payment), then fees (I never have those), and then principal (yay!).
Income Based Repayment Rate
If it weren’t for income based repayment plans, I would be a financial disaster right now. The payment amount is based on last year’s earnings, and re-calculates every summer. You get your new payment amount in July-August, and the new “year” of payments starts in September. I am thankful for the payment plan, but it has put me a bit behind because until 2016, I wasn’t even paying the interest each month. For example, in the first year, my payments were $120/month. Then they went up to something like $300. They stayed there for a couple years. Then, they jumped to $510 (which I still couldn’t afford at first). Then, the formula changed and they dropped to $408.
Starting this month (September 2016), my payment plan has re-adjusted to $840. Yes, over $400 more than last year. But because I’m otherwise debt free*, it’s actually manageable. Thank God!
*Don’t tell Dave Ramsey that I’m not counting my house as debt. It was worth more than I paid for it on the day I closed, and the value keeps increasing thanks to a boom in the Pacific Northwest housing market. Also, if I wasn’t paying a mortgage, I’d be paying rent. So I don’t count it and this is my monthly update so he can’t tell me what to do… But really, let’s keep this between us.
So you may be wondering how I plan to pay these off. I’ve written a lot of charts on notepads and in my planner, I’ve downloaded a lot spreadsheets, I’ve re-evaluated my budget. And for now I’m just going to focus on one month at a time. I do not currently have a “paid off by” goal for the grand total. While it’s much sooner than 2035, it still feels really far away. Also, a lot can happen over the next 5-7 years. Instead, I’m setting a short term, manageable goal.
Set Short Term Goals To Stay Motivated During Debt Repayment
So here’s my first goal: Pay off the Bar Exam Student Loan
At first I thought that I should pay the Subsidized loan because it’s so much more money, but less than the Unsubsidized loan. I assumed the interest would accrue faster and cost me more money. While it does accrue more in interest each month, in the end, it actually doesn’t save me any money. If you went to Med School or got your MBA instead of a law degree, you probably knew this before you did the math. But if I could do math, I would have gone to one of those schools too. Instead, I’m a lawyer.
As it turns out, money at the same, or basically the same, interest rate is the same no matter which loan you pay. So I’m sticking with the snowball method. It served me really well on the credit cards and car debt, so I figure I’ll keep the streak going.
What You Can Expect From These Reports
Next month I plan to update you on what I paid toward each loan, and any extra income I made during the month. Some of that income will go toward the loans, some will go into savings or toward the blog. October will tell you how September went. November will tell you how October went, and so on. I plan to update the percentage paid. Stephanie does this on her debt repayment updates and I really like it. So I’m shamelessly copying her :).
I hope that these reports will inspire some of you to tackle your student loans or other debts. I also hope they’ll help me stay motivated to make good financial choices. Paying off the credit cards felt like a lift of shamefulness. I think it’s easy in this culture to just ignore student loans. I don’t want to lose my gazelle intensity just because student loans are more acceptable. I’m not interested in being 59 years old and making my last law school student loan payment (and then 60 when I pay taxes on whatever is forgiven). So instead I’m doing the really uncomfortable work of facing them now. Thanks for coming alongside me during this journey. I’d love to hear your story too. You can leave it in the comments, or tell me about it on Facebook or Twitter!
I’ve written a few posts about finances and being a lawyer already. Here are the links if you’re interested:
- What is the Snowball Method?
- How I Paid Off $11,000 in Credit Card Debt
- 4 Changes I Made to No Longer Hate Being a Lawyer
- The Hosting Service I Use for Blogging – which allows me to earn extra money by blogging
- Why I Bought A House When my Boyfriend Already Owns One
- Why I Have a Roommate at 30 Years Old – published on The Huffington Post
- How to Start a Prayer Binder in 3 Easy Steps – just in case faith is impacting your financial journey