The City for Millennials. Student Loan Elimination Guide

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Bartholomew Casey
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1 The City for Millennials Student Loan Elimination Guide

2 Disclosures The views expressed on this in this guide are personal opinions only and should not be construed as financial advice. Information presented in this guide is intended for informational and entertainment purposes only and is not meant to be taken as financial advice. While all attempts are made to present accurate information, it may not be appropriate for your specific circumstances and information may become outdated over time. The authors of the content are not finance experts, CPAs, CFPs, bankers, or attorneys, and you should seek professional advice before making any financial decisions. Please make sure to do your own due diligence and seek a trusted financial professional before making any financial decisions of your own.

About Me I'm Thomas, a 32-year-old DINC (Double Income, No Kids), living in an expensive city. I finished a professional graduate school program in my early 20s with $80,000 in student loans debt.

3 About Me I'm Thomas, a 32-year-old DINC (Double Income, No Kids), living in an expensive city. I finished a professional graduate school program in my early 20s with $80,000 in student loans debt. If you are like me (and most millennials), you left school with massive student loan debt. Feel like you re never going to pay them off? Student loans are no joke. My first job out of school paid $40,000 per year. I had no idea the magnitude of debt I was in, but I felt the pressure immediately once the loans started accruing interest. My monthly payments were $800 with an average 7% interest rate. I had a 15-year repayment period which would cost me $143,000 over the course of the loan. Thus, I would end up paying over $63,000 in interest if paid back over 15 years! That was not going to work for me. It was time to start getting serious about I paid off my $80,000 student loan debt in 3 years...by traveling and working abroad. paying off the student loans, and fast. I set a goal of three years, and by the time I was 27, I was student debt free. Here s how I did it. 1. Get serious about paying off your student loans...now! Loans $uck and can haunt you for decades. I know it s tough, but you need to make the decision to bite the bullet and get serious about paying off student loans. The first step to success is admitting you have a student loan problem. Once you've decided to get serious, you need a strategy. My strategy was to pay off the loans with the highest interest first!

between, you can find gigs that will pay extra to travel for work. Many millennials are working in fields that are unrelated to their education anyway, so think wide, and think big!

4 between, you can find gigs that will pay extra to travel for work. Many millennials are working in fields that are unrelated to their education anyway, so think wide, and think big! Companies are hiring people who want to say yes to travel and yes to opportunity. And it's a blast (for a few years)! I traveled 2 weeks out of the month. I worked hard, most days hours. Luckily, the company I worked for allowed compensation time to accrue for any hour after 10 hours a day. I used these comp hours as paid time off or received a straight pay out. Enroll in travel credit cards and hotel rewards accounts. I accumulated enough miles and hotel points to cover my personal travel for 3 years after I stopped traveling for work. 2. Work for a company that requires you to travel You can make HUGE loan repayment strides with a travel job, and your early 20s are a perfect time to do it. Many millennials are starting families well into their 30s, giving them the flexibility in their 20s to pick up and leave for weeks on end. When I was 24, I worked as an ecologist on jobs that took me throughout the U.S. There are many professions that promote travel opportunities. Whether you are a lawyer, doctor, nurse, engineer, teacher, or anything in- Since I was traveling half the month, I was determined to only pay half a month s rent. I focused on subleasing my apartment during my weeks away. This took organization and planning, but resulted in huge savings. Now it's even easier with AirBnB. Ultimately, I purchased a two-bedroom house, found a housemate, and rented out my room while I was away. This covered the full cost of my mortgage. The $ went to my student loans. Win!

3. Work overseas for a few years I wouldn t be in the financial position I am today if didn t make the decision to get serious about paying off my student loans.

5 3. Work overseas for a few years I wouldn t be in the financial position I am today if didn t make the decision to get serious about paying off my student loans. Student loans are crippling our generation. Millennials are predicted to be less financially successful than their parents. I call it the curse of the millennial student loan syndrome. Did you know that many companies will pay more than double your salary if you work overseas? These companies seek the experiences and education that many people from the U.S. can bring to the table. A year after graduation, I accepted an opportunity to work on a United Nations program to remediate the damages from the Gulf War oil spill along the coast of Saudi Arabia. Just like that, I went from a $40,000 annual salary to $90,000 that year, and then up to $120,000. In addition, work paid for my lodging, car, and all expenses in country (massive savings!). There are exciting and creative ways to make enough cash to pay off student loans. Think outside the box! As I explored the Middle East, Europe, and Asia, I realized that there is a strong American expatriate community representing most professions. A simple google search for international work opportunities will result in plenty of options. Here s the kicker. Insanely beneficial tax advantages exist while living and working abroad (consult your tax professional). When a U.S. citizen works abroad, over $100K of income can be excluded from taxes. This is called the Foreign Earned Income Exclusion tax credit. According to the IRS, if you were physically present in a foreign country for at least 330 full days during any period of 12 consecutive months, you may be eligible. In just three years, I eliminated my student loans. A huge hurdle towards financial independence.

6 Table of Contents The City for Millennials 1. The Curse of The Millennial Student Loan Syndrome 2. The Various Types of Student Loans and Repayment Plans 3. Loan Consolidation and Refinance 4. Student Loan Elimination Strategies

1. The Curse of The Millennial Student Loan Syndrome The average Millennial leaves college and enters the professional world with an average $27,000 of student loan debt.

7 1. The Curse of The Millennial Student Loan Syndrome The average Millennial leaves college and enters the professional world with an average $27,000 of student loan debt. If you finished school in 2016, the average student loans debt was a whopping $37,172! Over 70% of students left school owing money. Many private loans have high interest rates that are dangerous and very scary if you are not on top of them. Some repayment plans last over 15 years and over the course of the loan, you may end up paying more than the total amount of the loan itself. I considered the details of the payments and realized I was barely making a dent into the principle. I would end up paying over $63,000 in interest if paid back over 15 years! Chances are, if you are trying to live in a n expensive city, you are struggling to make a dent. Student loan debt can be scary and dangerous. Millennials were extremely optimistic as we entered adulthood despite the fact that we are expected to be less financially successful than our parents. Many Millennials went to college only to find ourselves employed in unrelated fields or underemployed and job hopping frequently. We want to enjoy travel, have adventures in expensive cities, but also the thrills of financial freedom in a world of intense competition. How is this possible with student loans? How can we rid the curse of the millennial student loan syndrome?

8 Federal; and 2) Private. The majority of loan availability and repayment programs are through federal sources. Federal Loans: The main federal loans that are given directly to the student are Stafford and Perkins loans. If you have student loans, you likely have one, the other, or both. They usually have low interest rates and softer repayment options including a grace period post graduation. Stafford loans are more common than Perkins. They come in two forms, subsidized and unsubsidized. Making sense of student loans can be frustrating! 2. The Various Types of Student Loans and Repayment Plans Loan Providers: Loans may come from a different borrower each semester/year. It is possible to have >10 student loan payments due every month upon graduation. Confusing! Consolidation can simplify the repayment process (section 3) Student Loan Types: Two major sources of student loans exist: 1) Subsidized loans do not accrue interest until after you graduate (meaning the federal government pays the interest while your win school). Alternatively, unsubsidized Stafford loan interest accrues while you are in school. You are responsible for paying it back in full once you graduate. Stafford loans typically have a 3.7% interest rate. Very low in comparison to your credit card bill! But it adds up.

9 2. (continued) Perkins Loans: 2017 legislation ended the Perkins loan program. They were popular with need-based college students. These loans were desirable because they were all subsidized (government paid interest while in school). Note that not all colleges or universities participated/offered Perkins loans as an option. The interest rate was fixed for the life o fit loan at 5%. PLUS and Grad PLUS: These loans are available to both students and parents to help pay education. They are also part of the federal loan family. These have no maximum amounts and can be used to cover any education costs not covered by other financial aid. PLUS and Grad Plus loans typically have a 6.3% fixed interest rate. Private Education Loans: This family of loans may be available to students and parents who still cannot pay for the full education, even with federal loans. Interest rates could be fixed or variable throughout the life of the loan. The interest rates are typically much higher than federal loan options, lower than credit card rates. 6-10%. The are not subsidized so student will accrue interest while in school. Some will require payments while in school as well. Yikes! Repayment Plans: There are multiple repayment plans available to graduates, but the most common are: 1) Standard Repayment; 2) Graduated; 3) Income Based; and 4) Pay-as-you earn. You are automatically assigned a standard repayment plan if you do not select among others. You pay a fixed monthly fee over the course of the loan. This option pays the least amount of interest. Often times, the monthly rate is high but they are paid off in 10 years. Graduated repayment plans also typically have a 10 year repayment term. The payments start small, and then increase every two years. This is a good plan for those who expect their income to increase over time. Income based repayment requires you to show partial financial hardship. Repayment is based on income, location, and family size. This plan can last up to 25 years, but you may qualify for forgiveness of the outstanding balance after years. That said, you may have to pay income tax on the forgiveness amount. Pay as you earn is similar to the income based plan, however, you may still be eligible for this plan even after you are no longer in financial hardship. Same forgiveness opportunities exist as the income based. Note that you will end up paying more interest the longer it takes you to pay back these loans. Yikes! Note that there are three paths to loan forgiveness. Check them out on debt.org Note that for Perkins and Private Loans repayment plan options may differ. Look at your promissory note for details.

3. Loan Consolidation and Refinance When I finished school, I came out with $80,000 in student loan debt. I had multiple loan types, and even more loan providers.

10 3. Loan Consolidation and Refinance When I finished school, I came out with $80,000 in student loan debt. I had multiple loan types, and even more loan providers. Loans may come from a different borrower each semester/year. It is possible to have more than 10 student loan payments due every month upon graduation. Confusing! Consolidation can simplify the repayment process. Consolidation sometimes can feel like tying up loose ends If you consolidate your student loans (federal or private), you will be responsible for one payment, once a month, to one lender. Note that the Debt Consolidation Loan program will only consolidate your federal loans. You can use other private consolidation providers to consolidate both federal and private into one. But what if my loans have different interest rates? Rates for the Debt Consolidation Loan program are determined by the weighted average of the interest rounded up to the nearest one-eighth of 1%. Student Loan Refinance: Some student loan borrowers with excellent credit may be able to qualify to refinance their existing federal student loans with a new loan with a lower interest rate. Private companies such as SoFi offer competitive rates with the potential of costing less in the long term. You may have to pay more upfront, but the interest may be less. Check out SoFi. I cosigned for my Fiancee s refinance loan and we save $25,000 over the life of loan.

11 4. Student Loan Elimination Strategies

12 Get serious about paying back student loans, and make more than the minimum monthly payment. Loans SUCK and can haunt you for decades. I know it s tough, but you need to make the decision to bite the bullet and get serious about paying off student loans. The first step to success is admitting you have a student loan problem. The fastest way to pay off your loans, and reduce the over cost of interest, is to make more than your monthly minimum payments. If you are already paying back your loans, you will see an option to add an additional amount to the principal. We recommend setting up monthly payments, with an additional amount added in that goes to the principal each month, automatically. Even if you can only afford an extra $20-50, it will benefit in the long run.

Stop avoiding looking into your repayment details. Do the math and figure out how long it will take you to pay off your loans. What is the exact date?

13 Stop avoiding looking into your repayment details. Do the math and figure out how long it will take you to pay off your loans. What is the exact date? Do you seriously want to be paying monthly student loan bills until this date? Understanding the details of your loan will help you confront the problem. Your debt. Mark this date on your calendar, and then see if you can beat it. Paying down your principal and reducing your repayment time period will save you SO MUCH MONEY in the long run.

Be budget conscience. Trim the fat! I strongly recommend taking a step back to look at your financial picture and cash flow. What are your assets, what are your liabilities? What is your net worth?

14 Be budget conscience. Trim the fat! I strongly recommend taking a step back to look at your financial picture and cash flow. What are your assets, what are your liabilities? What is your net worth? Are your student loans your largest liability? What else are you spending your money on? Our generation has extremely powerful financial analysis tools at our fingertips that others did not have before us. Using the free tools from Personal Capital, you can really dive into the details which will expose areas of waste (places where you can cut back on spending to increase student loan payments) If you saving cash in excess above a typical 3 month safety net, you may consider shifting that saving to reduce your loan principal. Similarly, if you are going out 5 nights a week, try cutting back by a few nights and put that amount towards your loans.

Make payments every two weeks, instead of monthly By splitting your monthly payments in half, and setting your automatic payment option to that amount every two weeks, you will make one full extra

15 Make payments every two weeks, instead of monthly By splitting your monthly payments in half, and setting your automatic payment option to that amount every two weeks, you will make one full extra payment each year. It s basic math. If you receive bi-monthly paychecks, you will likely not even notice the pain of paying the extra amount each year. I still recommend adding anything you can to the principal each payment.

Student loan interest tax deductions (and refunds!) If you are currently paying back student loans, you are also paying a lot in interest each payment.

16 Student loan interest tax deductions (and refunds!) If you are currently paying back student loans, you are also paying a lot in interest each payment. The amount of money that you spend on interest each year is likely eligible for student loan interest deductions on your federal taxes. Currently, you can deduct up to $2,500 of interest payments on your taxes each year. Consult your tax professional, but typically, people in their 20s and 30s will meet the requirements. Even if you take the standard deduction, you can also deduct this student loan interest. If you are lucky enough to receive a tax return refund, I strongly recommend putting it towards any high interest liabilities such as student loans!

Get a raise this year? Apply it to your loans! If you are employed and receive annual salary raises/adjustments, consider putting the net increase/pay period towards your loan principal.

17 Get a raise this year? Apply it to your loans! If you are employed and receive annual salary raises/adjustments, consider putting the net increase/pay period towards your loan principal. More often than not, millennials with massive student loan debt tend to apply their raises to something material or an adventure. It is important to balance your quality of life, however, it is equally important to think about your wants vs. your needs. You can increase your automatic payments after your raise, and then set back and watch your principal red extra amount each year.

Get your side hustle in gear If you are having a hard time paying amounts on top of your monthly bill, or struggling making the payments, you need to make more money.

18 Get your side hustle in gear If you are having a hard time paying amounts on top of your monthly bill, or struggling making the payments, you need to make more money. The best way to increase your salary is to work overtime, earn a promotion, or take a job similar to your current one, but with more responsibility. If changing jobs is not in the picture, you can find a way to side-hustle. In fact, the majority of us millennials supplement our income with a side gig. There are soooo many side hustles out there. You can delivery food, drive for uber, photograph weddings, walk dogs, sell items around the house, tutor, write a blog etc. Make sure you align this side hustle with your passions (so that it is fun!). Whatever you decide to do to supplement your income, try and be disciplined and put it all towards your student loans.

Coming into some money? Direct it to your loans If you are lucky enough to receive a cash windfall (gifts, inheritances, lottery winnings, tax refund, etc.

19 Coming into some money? Direct it to your loans If you are lucky enough to receive a cash windfall (gifts, inheritances, lottery winnings, tax refund, etc.) make sure to make responsible financial decisions. It is so tempting to spend each windfalls on your wants instead of needs. You need to pay off your liabilities. Your future you will thank you! Try and divert as much of the cash windfall as you can to your student loans!

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