Questions for LynnMN

[Anonymous]

Lynny47,

I graduated in May '08 with roughly $45K in private Sallie Mae loans and $15K in federal loans. The federal loans have a 10-year repayment plan of approximately $190 a month, and the Sallie Mae loans (6 in total) are grouped together in a 15-year repayment plan of about $450 monthly. ($640 total -- sometimes I pay a bit more but I can't afford much more than $700) A little less than half my payments go toward interest, the other half toward the principal balance, which sucks but I don't think I can change that. My interest rates vary by loan, I think they're in between 5-8 percent. 

My income isn't very much -- I got a job that pays $35K a year (about $28K after taxes) and I'm able to make my payments though I admit I don't have a lot left over after! It's tough, but if your son budgets his money properly and doesn't spend too much on "extras" -- entertainment, electronics, booze, shopping, etc. then he should be fine. 

He also has the option of a graduated payment that he can look into that's income contigent. I have thought about this since it would lower my monthly payments (not sure by how much) but I would end up paying more interest in the long term so I don't necessarily want to go that route unless I absolutely have to. And my parents don't help me out at all, so he's lucky that you're looking out for him! 

[Anonymous]

Thank you for answering my questions.  Yes my son is very lucky that my husband and I are able to do this for him.  It has been a struggle while he is going to school but he will graduate next month.  My son is  a very independent young man who expects to do all of this himself but I just don't see how until he is working and hopefully doing well.  I am thinking that the Income Contingent might be better for him for a couple of years.  His Federal Stafford Loans really are not that bad and they can be dealt with a lot easier then the one Private Loan.  He will still have 6 months before he has to really start paying for them and then he is doing an internship so he could get another 6 months but of course you have to pay all that interest.  My son's love is music and that is what his degrees are in so hopefully everything works out the way he plans.  Sometimes I think for people getting out of school they would be better to take the lowest payment and then spend a couple of years only spending on what you have too and putting as much as possible away and then you could actually have it paid off and then go forward with your life.  With these tough economic times though not so sure a person can do that.  Thank you for the options though.  I think that if the government wanted to help out more so that more young people would not be struggling they could of lowered the interest rates on anything that has to do with continued education.  That would definitely help for awhile and at least you would not be paying back so much interest.  Thanks for all your help. 

[Anonymous]

Happy to help! I also just remembered... 

Another thing my dad mentioned doing before I had to start paying back my loans was sending in payments for interest. I made a few payments in college but mostly forgot about it. It didn't seem like much, and it didn't look like it was doing anything...

BUT when you file taxes every year, you get a statement from the loan companies about how much interest you've paid and deduct that from your taxes. So even though I started paying my loans in Nov/Dec, I was about to deduct some $500 for interest alone. And I got a pretty nice return for it.  

And about what you said about taking the lowest payment... that sounds like a good idea on the surface, if you think your income is going to generally rise over the next 10 years (which we all hope for, of course!) but I know that things happen -- I could lose my job, get in an accident, etc. -- so it's really best to try to pay off as much as possible. Just read the horror stories about people who ended up with medical bills and over time their student loans doubled from the original amount!! How scary is it to be in your 40s and have $60K in loans still??

I like to think about it this way too: Right now, I'm 21 and living in a tiny apartment completely devoid of luxuries. I don't own a car or have cable or anything like that.... but that's okay! I'm not dependent on having those things. It's better to live a meager lifestyle and work to become debt free, looking forward to the future of having nice things and a good salary and plenty of money for retirement, travel, etc.

You don't want your son to starve, of course, but it's way worse for him to get used to having nice stuff, a nice apartment, and so forth, and never face down that debt. Learning to be frugal is more important and it will really make him more responsible over the long term. 

[LynnInMN]

Basil....that is exactly what I did when I graduated law school.  I moved back in with my mom....however I still had to pay $500 per month for rent.  (She was planning on moving to a smaller apartment but with me there for a couple of years I  shared her rent.)  I used public transportation, no vacations, and worked a second job just to pay down my student loans. Of course back then I didnt have internet or cell phone bills.  I worked and paid out.  I eventually got my own place in year 3 for about the same rent and continued for another 2 years until it was all paid off.  Then I went on a months vacation.  Never did buy a car....public transport was cheaper.  Didnt bother will a car until well after I moved to the US. 

[Anonymous]

Well you sound like a very responsible young 21 year old and you have learned something that most young people don't learn for many years until they have gotten themselves in way over there heads that being debt free is the best gift they could give themselves.  I consider myself to be a little on the crazy side about paying off my own debt.  I have myself on a 4 year plan which should include the student loans I have taken but then I should be all done.  I got the interest off my income taxes this year for the student loans and that was nice but they decide how much they are going to credit you with in regards to your income.  I personally don't think it should matter.  My son is used to doing without and the only finer things that he has is his car which he purchased when he was working before he went to school so we have been helping with that.  Once he is out of school he will have his apartment, student loan, insurance and car and that is it and he is a hard worker so I know he will do whatever he has to do in order to get it all paid.  Life gets better as time goes on and these things drop off.