7.20.2012

Dealing with Financial Stress and Grad Student Loans

I wrote a post for Sean over at One Smart Dollar that is live today regarding Graduate Student Loans and the options you have when going to graduate school (in the United States). It’s been awhile since I’ve talked about my personal finances and I wanted to write a more in-depth post today that supplements the guest post since I am beginning my journey with the whole student loan debt thing.

In the guest post, I talked about the different types of Federal student loans that are available to me (as well as every graduate student). I’ll be taking out Federal loans only so that I will be able to consolidate and possibly qualify for government programs if new regulations are added. You just never know. Plus, with private loans, the interest rates are variable.


Stressing About Grad Student Loans and Law School Tuition

I've always known how much law school would cost me, but it never really hit me until I was applying for the loans 2 weeks ago. I’ll be taking out the maximum amount for Federal Direct (unsubsidized, grad students aren’t qualified for subsidized loans as of 7/1/2012) and only what I need from the Grad PLUS loan (totaling $48k for this year). It sucks stressing about it so much right now because I am going from zero debt to massive amounts of debt in one fell swoop.

Just as a disclaimer, I know what I want to do with my J.D. and I’m not blindly going into law school just because I have nothing else to do. I’ve fully researched this and the cost-benefit analysis as well as what I want to do with the degree when I graduate as well as the future. I’ve talked to many, many people about this decision and have heard all the pros and cons. 

I looked at employment statistics at my school, became a TLS addict (a forum for people going to law school), I’ve calculated the costs, how much I’ll have to pay back monthly, how much I have to be making and how much interest will be added based on a 10/15/30-year repayment plan, and even the budget I want to live off of during school. Plus, this has been a dream of mine and why would I let anything or anyone’s opinions hold me back from a dream? A lot of people do not research everything fully before heading to grad school, but I have, and I am glad to have a place to share my thoughts and experiences in hopes of helping someone else in my shoes.

I am doing everything I can to keep my debt low. I am taking out as little as possible, using my savings sporadically to cover more costs, and I will also be working part-time to cover living expenses. By the end of the first semester, I’ll be applying to scholarships. I want to do everything I can to minimize the amount of debt I take on. I have a budget that I will share with you in another post that shows my bare-bones living expenses. Tuition is the biggest money sucker at $43,000 a year! =(

Where I Stand Financially

I have about:
$33,000 in cash savings in a high-yield savings account (0.80% is not really high-yield, pfffft!)
$7,000 in my 401k
$6,000 in my roth IRAs, and
$1,500 in stocks.

I stopped my roth contributions at which I was contributing $300/mo, stopped my stock contributions at which I was contributing about $160/mo, and I will continue the 5% 401k contributions until I see just how much work I can handle while going to school full-time. I want to keep everything in my retirement/investment accounts as well as my cash savings for emergencies.

I kind of feel stupid for stopping the stocks because I buy my company stocks at a discount. Out of all of my investments, I have earned the most with those stocks! I didn’t have time to think about it yesterday but I just changed my contribution amount to 0%. Now when I tried to undo that, I realized that I couldn’t do it again until the next contribution period, which is January 1st of next year! :( The last one was July 1st, so I should have thought about this sooner.

I plan to pay the interest on the loans during school with some of my savings and also *hopefully* stay under budget so I can give back some of the loan money that I won’t be using. I also don’t want to use my cash savings to pay for tuition because I want to have an emergency fund. Some people may disagree with that, but I’ll feel better knowing that I have cash to pay for the interest as well as any emergencies that pop up.

Plus, I feel emotionally attached to that $33k in savings. It signifies the sacrifices I’ve made in these past two years, and I don’t want to let it all go in just 1.5 semesters.

Check out this chart I found from AskHeatherJarvis.com:


Isn’t crazy that tuition just keeps rising and rising? The cost of tuition surpasses the cost of inflation by almost three times….THREE TIMES THE AMOUNT!!! That’s insanity. Perhaps I’ve been so ignorant of student loan debt in our country, but now that I’m part of the majority of people that have this debt on their backs, I’m fully aware of it now.

Then pops up the new ICR-A program for student loans…

On Twitter, I saw this tweet about the new option for student loan borrowers called the ICR-A program, formerly known as President Obama’s Pay As You Earn Initiative. Your annual payments are capped at 10% of discretionary income and the remaining loan balance is forgiven after 20 years of qualifying payments. You have to have gotten your first student loan on or after 10/1/2007 and another student loan on or after 10/1/2011.

This is different from the IBR program though, but after discussing it with the BF, it’s funny how my position changed. At first I was thinking, “oh cool, a way to get your loans forgiven” but then I was calculating how old I’d be 20 years from now and I’ll be 44 years old. Will I still qualify for the program by then? By getting into this program, I would basically be predicting that I wouldn’t be making enough to pay off my loans. That’s why these programs are geared towards people who work in non-profits, Americorps, or other low-paying jobs.

Other cons would be maintaining the paperwork of showing financial hardship and having to stay on top of your loan officer all the time, otherwise your monthly payment goes back to what it would be without the program (same as IBR). If you went 20 years of making payments and your loan is forgiven, you’d also be responsible for paying a hefty tax on that amount.

Stressing about everything financial

There are a ton of things that I’m stressing over right now financially such as my dental bill, urgent care bill, possible root canal bill, money for school books, vet bill, optometrist bill, and then there’s tuition looming above my head as always. All of these large expenses are coming now because I wanted to optimize my health insurance benefits before I cut my hours down to 10 hours a week. 

Since I’ll be going from full-time to EOC exempt, I will not have benefits after my last day of full-time work (July 27th). I wanted to get my free exams that I’m entitled to (and that I’ve paid insurance for), but as with anything, there’s always more problems or more appointments that need to be paid for.

I think the most sensible thing is to plan ahead (as with everything) and know what I’m dealing with. I’ve already calculated everything and went over the numbers, details, and discussed things with the BF and parents. Everything is good to go, but I can’t help but keep stressing about the mountain of debt I’ll be under.

I plan to go with the $48k of loans this year, and see just how much I can reduce that next year - hopefully with the help of scholarship money, taking on more hours for work, and maybe a little help from both sets of parents.

The BF has been great through it all and just tells me to focus on school, relax, and don’t think about money too much because we will work on a plan together. I can’t really do anything right now about repayment options since I’m just beginning grad school and beginning the student loan journey, but it’s nice to know that we’re on the same page. I need to focus on the charges that can be controlled right now, and I think I’ll be fine.

Can anyone else with student loan debt share how you deal with stress over finances? 

I’m new to student loan debt (I’ve only had consumer debt, which was so small in comparison to this), so any tips would be appreciated! 

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