Project Hero deserves a zero: comment on our student loans interest increase story

The report makes it clear that many Investors don’t want to buy student loans if the interest rate continues to be capped at “the lower of the Retail Price Index … or 1 per cent above the highest base rate of a nominated group of banks”.

Since these cash flows would only be at issue in the final years of the loans, due to how repayments are structured, the current government would be committing a future government to covering these payments. It is not clear what current provision would be made to ensure that the future administration is not left with an unpleasant bill. The last few decades have seen governments repeatedly prepared to ‘kick the can down the road’.

(Abusive or off-topic comments will be deleted)


Zero-Interest Student Loans Offered in Rhode Island

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I was scouring the internet for some piece of good student-loan-related news to balance out all the gloom and doom that’s been dominating the airwaves and 24-hour news cycles. I came across this, and it’s definitely worth sharing.

Republican-turned-Independent Lincoln Chafee, Governor of Rhode Island, has introduced a zero-interest student loan program for nursing students who agree to work in the state after they graduate. The state expects to require 6,500 nurses by 2020, and the program is being used as an incentive to keep nurses working in Rhode Island after they graduate.

My sense is that this is an example of how student loan programs really can be used to further people’s education in a positive, productive, and fair way, and get them employed in stable, well-paying careers after they graduate. Students get to finance their program up-front with little-to-no borrowing costs and nearly-guaranteed employment, while the state gets to keep young talent within its borders. Sounds like a great deal to me. The program is being offered by the Rhode Island Student Loan Authority. Read more here, and also check out their loan forgiveness program for primary care providers.

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Adam S. Minsky founded the first law office in Massachusetts devoted entirely to assisting student loan borrowers, and he is one of the only attorneys in the country practicing in this area of law. He provides counsel, legal assistance, and direct advocacy for borrowers on a variety of student loan-related matters. He regularly speaks to students, graduates, and advocates about the latest developments in higher education financing.


How I Paid off $40,000 of Student Loans in 18 Months

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How I Paid off $40,000 of Student Loans in 18 Months

A few weeks ago I requested my loan payment information from SallieMae so that I could pull the curtain back on exactly how I paid my loans off so quickly. Unfortunately they only provided me the information for my last 50 payments (maybe I didn’t pay enough in interest for my complete payment info?), but it should paint the picture pretty well.

The awesome thing about this is that I can pinpoint exactly where I decided to change my life and become debt free. The sad thing is that I had no idea what I was doing when I started.

Fresh out of college, I was an unbelievably stock Millennial with zero financial knowledge. My loans had already capitalized a few thousand dollars of interest, which was fine because I didn’t know what capitalized meant or how interest worked. Life was good.

Amount applied to interest you ask? All. I probably didn’t even realize that I effectively had just done nothing to my loan. I might as well have rolled down my window while I was driving on the highway and made it rain.

If you are looking at the above payments all made on the same day and asking yourself: Huh? I don’t blame you. This was my first attempt at paying off my loans quickly. I thought I could outsmart the system and pay less in interest if I made a bunch of small payments.

Looking back on this, I was a moron. I also thought it was fun to lick batteries when I was really young. Let’s move on.

Starting to get some momentum going…

What?! Two minimum payments over 3 months? Actually, I had gotten pretty far ahead of my required payments and realized that I had nothing in my savings account. One of my friends beat it in to my head that I HAD to have an emergency fund. I spent the next three months stashing money into my savings so that I could protect myself against any financial emergencies that might come up.

What I’d like for you to get from this is that you need to have some money set aside. I put away about $3,000 during that time span that I didn’t make consistent loan payments. This is something that I highly recommend you do before you start destroying your loans like I was about to do.

Boom. All of that progress in a year and a half. Just one more payment and I would be debt free.

The last one hurt a little bit, but I wanted to be done with it by this point. When you make the kind of loan payments I was making, you really start to look forward to the light at the end of the tunnel. Unfortunately after checking my loan account I noticed that my loans weren’t paid off. I had made a mistake .

Fortunately it was just a small one haha.

You can do this too. You just have to commit and get started. Feel free to reach out and ask me for some help, I’m here for you.

Getting rid of your student loans feels great. Seriously. It’s awesome. I made the choice not to change my lifestyle afterwards and have made similar payments to myself after destroying my loans. Now, instead of focusing on debt, I’m focusing on wealth.

How much do you have left on your student loan debt?

Live differently. Your bank accounts will thank me later.

Zero interest student loans

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My first thought was, where did you get $1,300 a week to throw at a loan? My secong thought was, loans are typically due once every month, so why weren’t you making principal only payments for most of these payments and just pay the interest on the required monthly payment? That cost you a lot of extra money.

Millennial Money Man says

I would have loved to make principle only payments! Unfortunately, my student loans were federally regulated simple interest loans. Basically – interest accrues on them daily rather than monthly and it is federally mandated that every payment goes to accrued interest before it can be applied to the principle amount. In regard to the $1,300 (which was actually every 2 weeks), I cut down my spending like crazy and threw as much of my paycheck as I could at the loans. If you want to see some ways that I did it, check out this article. Thanks for reading!

$1,300 per week is admirable but not necessarily attainable for all. What do you think is a good percentage of disposable income to put towards student loans?

Millennial Money Man says

Hey Justin, thanks for reading! It was $1,300 every 2 weeks (I get paid bi-weekly) but I completely understand your point. I honestly didn’t use a percentage when it came to the amount of disposable income I would use to pay down my loans, and I don’t believe in any magic number. My philosophy is this: throw literally everything that you can at student loan debt. A percentage would have potentially limited the amount that I was willing to use, and it could have taken me longer to pay down the debt. I also looked at it this way: instead of utilizing my available disposable income, I did everything I could to create more. Just for fun though, I managed to put about 74% of my paycheck towards my loans.

Congrats on paying off your student loan! I am slowly seeing the light at the end of my tunnel and it feels great. I’m also taking a “throw everything you can at your loan” approach and hey, it works!

It works REALLY fast! Glad you are doing what I did. Keep going, it feels great when you are done.

Excellent job! I licked a battery too as a child but I don’t think I enjoyed it. Paying if off the student loan is certainly one of the best moves one should execute after college! $3k on the side for emergency is a good number.

I like the 3k number as well – especially for a post college student working on their loans. Now that I am debt free (and leaving my job) I will increase the amount to about 3 months of my former salary.

Good post, MMM (or is it Mx3?)

If your interest rate is low, say 3% as for some who consolidated loans about ten years ago, I would are for just paying the minimum on those loans and investing the rest. If you can get say 7% after tax (or more if you can add to your 401(k), Roth IRA, etc.), your net worth grows faster this way, especially if you can deduct the full $2,500 of student loan interest.

I hope to do a post soon to provide more on way this makes sense (cents?) financially

Anyway, enjoyed reading – keep it up

Hey Steven – what you are talking about could absolutely work (basically opportunity costs) and I’ve seen several articles about investing vs. paying off the student loans. However, here is what I like about paying off the debt: You get a guaranteed return on your money EVERY TIME you make a payment. Also…you get really good at managing your money, which will help your net worth later on in a HUGE way. Let me know when you do the post, I’d love to check it out.

We have used a similar system to pay off my husband’s student debt. It’s hard to choose which person’s loans to pay off first. My husband has $20,000 less than I do…so we are paying off his debt first. Mine seems so overwhelming it’s ridiculous. I never want my children to have to deal with the burden of student debt like we carry.

I’m glad you guys are knocking it out! If you haven’t thought about refinancing – I would check it out while the rates are still low. There are a few resources on this site and a ton of other companies out there that can lock you in to a lower interest rate than the normal 6.8% that a lot of people have right now. I agree with you – I am going to do everything I can to make sure my kids don’t have to deal with this!

unfortunately my minimum payment for my student loans per month is $1200 over 15 years. I wish I could throw more at it to get it paid off faster but that amount is difficult as is

Unfortunately I’ve met a lot of people in the same situation as you since I started this blog. It sucks – but hang in there. Have you thought about refinancing to get a lower rate? Another thing I’ve seen that works for my readers is starting some kind of side-hustle to make a little extra money every month. Budgetsaresexy.com has a great list of ways to make money online!

Frugal Principles says

Nice job! Student loan debt is crazy. I learned that the best way to get them paid off is paying more than the minimum and find ways to reduce expenses and funnel that extra cash toward paying off the debt. I am glad to say I was able to pay off my student loan debt in 4 years at age 26!

Wow – I paid mine off at 26 too, but it’s crazy when you actually see that number! Congrats.

I paid off my student loans at 26 as well! Congratulations! I’m actually keeping about $1,000 of my student loans at the 4.5% interest rate because it’s my longest open account and I’m thinking in investing in real-estate this year so I want my credit score to be tip top shape. Also, I am getting my masters part time and the interest goes on hold during those semesters.

THAT is a smart idea – I am planning on a commercial RE investment later in the year and my lack of debt is keeping me from a 720+ credit score. I’ll probably have to set some cash aside, finance something, and then pay it off to bump my credit.

Thanks! I’ve been frequenting the BiggerPockets website and am thinking of getting into some RE investing myself.

I was smart to leave the little bit left of my loans but I did close a few accounts I had open with clothing stores. The average age of my accounts went way down after I did that since I started with store credit cards before applying for the standard cards. I knew that would happen but it was more of a psychological thing for me. I just needed those cards closed.

BP is awesome – so many good resources there. Just for an update, my credit score jumped WAY up at the beginning of the year. Still actually haven’t figured out why…but I’ll take it!

I love what your doing, your teachings did me well, thank you ….Mr. Hoyt

Thanks! Glad I could help

One of the things that’s always added a complication in thinking about paying off student loans for me is the Public Service Student Loan Forgiveness Program. (I believe there are similar programs for public teachers and perhaps AmeriCorps volunteers.)

On the one hand, your advice above makes total sense–get the debt off ASAP. But on the other hand, for those of us working in nonprofits and who intend to stay in nonprofits indefinitely, it feels like a missed opportunity to not take advantage of the loan forgiveness potential at the end of 10 years. Along the way, you’re making the minimum payments and thus interest is often not even covered. But… if you make it 10 years (it’s actually just 120 qualifying payments, whether or not that is 10 years or not), you have both the benefit of a lower monthly payment along the way AND forgiveness of the balance at the end.

So, although it is a mindset shift, for those that have little to no interest in leaving the public sector, there is an argument to be made that paying off student loans in this way isn’t financially prudent.

Sure – there’s value in that strategy, but the issue for me is that it involves relying on something I can’t control. The thought of the benefits or program being cut altogether is something that is uncomfortable for me and a majority of my readers (from what I can tell). That’s why I keep telling people to do what makes them feel comfortable. I learned very quickly that there are multiple ways to attack debt, and just having a strategy is a huge win.

I don’t judge people anymore for how they choose to do it.

Don’t forget to look into the tax implications of the forgiven loans at the end of the program if that’s the route you choose!

Also – I’d double check the information on the 120 payments/10 year timeline as well. This is directly from StudentAid.gov regarding qualified payments for the PSLF program:

“What are the specific loan repayment requirements for loan forgiveness under the

You must have made 120 separate monthly payments after Oct. 1, 2007, on the Direct Loans for which you are requesting forgiveness. Payments made before this date do not count toward meeting this requirement. Each of the 120 qualifying payments must be made for the full scheduled installment amount and no later than 15 days after the scheduled payment due date. The 120 required payments do not need to be made consecutively.”

Wow! I’m impressed and I can’t wait to do what you did! I am officially graduating debt free this April after having about a total of $25,000 in loans over the past four years that i have chipped away at and thrown extra cash at. Combined with my new husband’s income we have paid my loans off. Now to pay off his $15,000 in loans and his last 3 semesters of school! Its all about lifestyle choices!

It is! Congrats on graduating debt free!

I worked all through my first three years of college, lived at home with my parents, and they helped with some of the tuition expenses, but I paid for a lot of it. I was debt free for the first three years and then had to take out loans for the last year when I got married and moved out. We originally took out around $19,000 in loans which were later pared down to $12,000 after we received some grants. Then we sacrificed, saved, and put as much income toward my student loans as possible. I graduated in May of 2015 and we made our last payment on December 30th, 2015. It was exciting for us to reach that goal in the same year that I graduated! I agree that sacrifice and delayed gratification are SO important to being financially successful.

I’m loving this site especially since you respond to everyone! That’s amazing and a lot of work!

My story is similar to that of your business friends. My grandfather is crazy good with money, parents were not. I was a sophomore in high school and we were having water turned off and not able to buy groceries cause we needed to wait till pay day. I did Dave Ramseys FPU with my parents and swore I wasn’t going to live in debt. I kept my promise went through school with no loans, bought cars with cash, eventually got a loan for a new car and paid it off in 6 months with some help from my grandparents. Then I met my now husband. We dated for five years and and have been married almost two. His financial skills are poor and he had 5k in cc 15k in a random private loan 20k in a second private loan for a get rich quick class in computers and 80k in student loans. While we were dating finances were kept very separate and I didn’t talk to him much about them. I knew it was bad but didn’t want to know how bad. While we were dating he put his student loans into a government income based repayment program. Well I looked into this after we were married he has a 7% interest rate and a 20 year repayment plan which is totally income based so when we got married our incomes combined we’re going to kill us (from what I understand). We sent him back to community college so he could defer his student loans. Paid for that in cash. We went by the debt snowball which incidentally was also by interest rate and Paid off the first 40k.

Now he’s getting ready to get out of school and we’re already working on the 80k but I’m wondering if there is a way to get us out of the income based repayment plan and into a better interest rate or are we just stuck. I’m struggling to find information on it.

$1300 payments? Hilarious. I bring home less than 1200 on a biweekly basis.