Month 4: -$122,748.12
I am looking into ways to simplify this report. First, because it takes me ages to figure out the numbers and how they work because interest accrues daily on these loans, and even then, the balances don’t always make sense to me. Second, because I want to get consistent in these reports, post them on the same day each month, and make it easy for people to read and review.
Because it’s only the fourth month of my Progress Report, I have kept a lot of the information the same for anyone who is new here and because I assume no one memorized Progress Report #1. Next month, I think I’ll reduce the information found here and link to the detailed information instead.
Remember, calling this “Month 4” is a misnomer. This is year 5 & Month 4 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!
Extra Income This Month
Amazon Affiliate: $00.00 – Amazon has a $10 minimum payout, two months after it’s earned, and I just barely didn’t meet the threshold this month.
Sponsored Posts: $150
Mode Media: $0 – I believe this would have been the month where my last Mode payment was sent, but I’m not positive. Next month, I’ll remove this category. I’m a terrible example and still haven’t sent over my bankruptcy court claim form.
Side Hustles: None. The season for my normal work in this area is over
Expected/Unexpected Reimbursements: None
*I added this column before Mode went bankrupt. I should have received about $50 again this month from Mode. I still can’t believe that happened and I’m kicking myself for being a terrible example and not ever saving my PDF of scheduled payouts because I assumed I’d always have access to it. I got the letter from the bankruptcy court and am going to try to do my best to piece together what I’m owed through my emails, but it would have been much easier with the PDFs.
My pitch was selected for an opportunity to make another $150 on a sponsored post, but I had to turn it down because I was so busy at work. Next months’ payoff report will include some extra posts I’ve done. I wish I could write them here to feel better about my extra income, but the fact of the matter is that blogging is a lot of work, being a lawyer is a lot of work, and there are simply times when being a lawyer takes over everything else. Missing opportunities bums me out, but lawyering will always be my #1 professional priority.
Where My Payments Went
Last month, I did a mini-remodel in my bathroom in hopes of getting a good appraisal. I cancelled one of my snowball payments in order to pay my contractor. I also put some charges from Home Depot on my no-interest credit card so that I could get the points. Most of another one of my snowball payments went to paying that off. Then, I remembered that it’s zero percent interest.
You may remember that I was putting $25 a paycheck toward my federal loans in hopes of making progress on the accrued interest on my subsidized loan. I’ve stopped doing this. All it did was reduce the portion of the monthly payment that goes to that loan. So in the end, the proportion isn’t changing.
Bar Exam Loan: $112 (minimum) + $418 (snowball) + $75 (snowball) = 605
Unsubsidized Loan: $211.00 (minimum) + $25.00 (extra) = $236
Subsidized Loan: $642.94 (minimum) = $642.94 – the minimum is actualy $604.58 but the auto-breakdown by my student loan company took money from the unsubsidized minimum and put it toward the subsidized minimum
Extra Blogging Expenses: $0
Discover Card at 0% Interest: $300 (Balance: $918)
Total Payments: $2,145.58
Current Law School Student Loans Balances
I’ve created some new charts to track the progress here. I might go back to the old way, or I might come up with a hybrid. But I’m excited about these bar graphs
The interest rates on these loans are what make my payments look almost meaningless on the subsidized and unsubsidized loans.
Bar Exam Student Loan: 7.5% Interest
Subsidized Student Loan: 7.125% Interest, Accruing $5.71 Per Day
Unsubsidized Student Loan: 7.125% Interest, Accruing $14.63 Per Day
Because my student loan is on autopay, my servicer doesn’t send detailed monthly statements. I called in October and found out the daily interest rate. Now I can calculate my repayment plan a little more accurately.
I’m still bitter about those interest rates because they went up right before I started law school 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.
The accrued interest rate discovery that made me cry
I used to say it was hopeless and I’d pay these loans until they were forgiven 25 years after 2010. And then, to make matters worse, I learned one month after starting these progress reports that before I can make any kind of principal payment on my subsidized and unsubsidized loans, I have to pay off the ~$11,000 of accrued interest! WHAT!?
I called my loan servicer because when I saw that after my largest payment ever on my federal loans ($840), my principal balance didn’t go down, I thought there was a mistake and called to find out why. The good news is that I thought my interest capitalized each year, and it doesn’t. So I am not paying interest on interest. The bad news is that I’m not paying down any principal on my Subsidized or Unsubsidized loans right now. I was near tears on the phone with the very nice lady who gave me a great pep talk and convinced me that it will be OK.
I still see light at the end of the tunnel, even if the tunnel is different than I expected. There is hope! I considered changing my strategy to pay off the accrued interest before my Bar Exam Loan, but after a lot of thought about interest rates and fantastic advice from a law school friend who generously replied to an open facebook status I wrote asking for help, I’ved decided to keep making my huge snowball payments toward my bar exam loan, and then put just a little bit extra every paycheck toward my subsidized loan.
On that note, you’ll see that I paid a tiny bit extra toward both my subsidized and unsubsidized loans. When I was on the phone with the nice lady at my loan servicer, she suggested targeting my payments so that I could try to start paying principal on the smaller loan sooner. I owe less than $2,700 in accrued interest on that loan (vs. almost $9,000 on the unsubsidized loan), so perhaps if I pay that off first, I’ll make more progress. The $15 was a test to see if it worked. It did. So then I set up a schedule to pay $25 extra each paycheck just to those loans. It didn’t work the way I expected. Because one paycheck a month happens before the full student loan auto-pay, that payment gets separated out between the two loans. It’s not super helpful, and I’ve decided to stop making that payment until I pay off the bar exam loan and can focus on the two federal ones instead.
FYI: In order to target payments, I had to send a letter to my loan servicer to say that 1) all extra payments should go to that loan, and 2) extra payments should NOT reduce next month’s payment.
If you’d like to direct your loan servicer to apply payments in a certain manner, you can use the template I used from the Consumer Financial Protection Bureau. I made some adjustments to fit my situation better, and sent it via the online messaging system even though my provider claims they MUST be received by mail. It worked! Wahoo!
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 in my 1L year. 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 only realized this in October. That’s why it’s important to LOOK AT your debts, even if they make you want to vomit.) This month (December), my bar exam lender sent me a detailed statement where I finally learned that this was a 15 year loan. Here’s a pro-tip, don’t put a $12,500 loan on a 15 year payment plan. That’s just absurd. That’s like buying a basic, used car and taking 15 years to pay it off. Ugh.
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. (PS. Thanks for all of the comments some of you have left saying that you’ve done that before, too.)
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 Plan
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 accruing 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 fall (September 2016), my payment plan 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.
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 if I don’t pay them off early.
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.)
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
Each 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. You’ll see that with Month 2‘s Report I made 1.005% of progress! That is actually pretty encouraging! My blog and then real life friend 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). As a result, 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:
- September 2016: Progress Report #1
- 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 – if faith is impacting your financial journey
- In October, I also found a great website that answers a lot of good questions at Clear Point. I would highly recommend reading the post and the comments if you’re dealing with student loans.