My Student Loan Baggage

One of the few topics in Dave Ramsey's Total Money Makeover that really irks me is his discussion of student loan debt. I'm not saying his points are all without merit. But when he talks about credit cards, he seems to understand that the mental/emotional game is just as important, perhaps even more important, than the financial one. And so he recommends paying off your lowest balance card before your highest interest card, purely so you can see results sooner. And I totally get that. But he does not allow for the same types of emotional weakness when it comes to student loans. Consider the rant of his in this link for instance. Ouch. That's all I can say. And since I am one of those previously professional, now stay-at-home mom's with over $100K in debt he's ranting about, it can't get much more personal than that.

When I look back over my life, there is only place I can think of that I maybe should/would have made a different decision about my education. And that was when I chose to keep pursuing a PhD in a field I wasn't sure was a good fit for me, instead of being willing to start graduate school over, or at least stop with a masters. Given that my graduate tuition was paid for, however, and that I was receiving a stipend for most of my living expenses, cutting out that leg of the journey wouldn't have changed that much. Maybe $20K less at best.

Growing up, we were poor. Like free school lunch, hand me down clothes from cousins, can't afford a school yearbook poor. I vividly remember my mom dividing one family size can of spaghettios between the 4 of my sisters and I, plus a glass of milk, for lunch. I was a small, hungry, skinny and very active kid, who hung out a lot at my friend's houses bumming snacks. My mom and dad fought constantly, and would have no matter what, but certainly a major theme of their blowouts was money. There was never enough of it, and it seemed that would never change. My mom often grew wistful in private about how, despite how smart she had been, she had dropped out of college after only a year or so at her first husband's insistence (my father) and never found her way back once the babies started coming with her second. And worse, how she could never leave her abusive second husband because she could never support the 5 of us on her own.

I'm not sure how directly it was ever stated, but I grew up with the clear impression that it was absolutely imperative that I go to college some day so that I would be able to support myself without a man. But that there would be absolutely no financial help for me to do so. This was further complicated by my step-father's abusive put downs of me compared to my sisters, and his continuous proclamations that I was never going to be good enough for anything.

Given the trouble I was often into growing up in a home like that, there were many years it seemed like he was right. There were many years I didn't bother with homework. For a period of time, I was suicidal. And I was pregnant before I was out of high school. But I harbored a deep, driving need to prove him wrong as well. And despite his insults otherwise, I was actually quite intelligent. And seriously driven to believe that there was a way out of my childhood and into the type of future I had always dreamed of. Halfway through high school, I turned over a new leaf and started to show what I was capable of academically, though my new daughter senior year complicated things a bit.

When I was applying to colleges, the last thing on my mind was the amount of money I was taking out in student loans. Certainly I qualified for every need based option possible, not to mention a few merit based ones as well. Imagining what that payback would look like 5 to 10 years down the road when I finally had a real job and was out of this mess seemed besides the point. My burning questions were: Am I really capable of this? A 4 year degree at a respectable university with a child? What if they see only what my step-dad saw? What if I am doomed to repeat the same life for my daughter as the one that was given to me?

But I got in and I did my best. My first year I did outstanding actually, but the second year my young marriage began to fall apart and afterwards, it took a couple years of struggle before my daughter and I found a new equilibrium. My last two years of undergrad I did much better for the most part, and somewhere during that time, I realized that to become anything more than a lab rat with my degree, I would need to apply for graduate school. In this sense, Dave's rant doesn't completely apply to me. I did understand that I needed to be highly marketable to pay for all this.

At that point in life, I was pretty clear that I wanted to be a working mother. I loved my daughter dearly, and was very much looking forward to being done with school and having more time eventually. But I was the kind of person who got depressed without something intellectual to pursue. Something for myself separate from my role as a mother. Perhaps partly because I had become a mother before I had gotten time to be just myself. As exhausting as it was during the semesters, school holidays were often worse because I just got so depressed with nothing to work towards.

If you had told me that I would one day choose to be a stay at home mom, I would have laughed in your face. Dave can say that young women without kids yet have no idea how they're going to feel when they do, but I think that's overly simplistic and implies we all want to stay at home deep down. I'm a stay at home mom now, and I'm still not always sure its what I want to be doing. Furthermore, I already had a child at that point. I did know what it was like. If I could have had the option to work only part time with a young family, that probably would have been my first choice. But that is not a realistic possibility in most fields, least of all mine, and I was not unrealistic. I figured with a PhD, I could make enough that my future husband could stay home if we wanted.

Graduate school was hard though. Really hard. My fears about not being good enough were constantly at an edge when surrounded by so many other brilliant people. I had developed a fuzzy, idealistic picture of my doctoral field while leisurely pursuing undergraduate research with lower expectations I had no trouble meeting. This vision was shattered to make room for the more brutal and difficult reality of what higher academia really was. The relationship with my advisor slowly went from love to hate. Somewhere along the way, I began to question whether I was really doing this for myself, or just to prove that I could. Some days, I began to acknowledge that despite how far I had come, it was possible I was moving in the wrong direction.

That is the one point in my academic journey I regret. If I had been brave, or maybe even just less tired, I would have thrown in my first 2 1/2 years of research and allowed myself to start again in a new field. If I had done this, perhaps I would be happily pursuing my new career even now? I had an inkling of what at least some of those other possibilities could have been. It wouldn't have set me back more than a couple years (though that would have added even more to my debt!). But that light at the end of the tunnel I had been impossibly chasing for so long was finally so close. I had already passed my preliminary doctoral exam. I had my project all mapped out. I just needed to buckle down for 3 more years and do it.

And so that's what I did. I figured when I was done I could work on re-branding myself in an area of research I was more interested in for the job hunt. Instead, I found myself perfectly trained to do exactly the type of research I did not want to pursue. But it sure payed well. Even if it did necessitate moving halfway across the country.

It seemed like that would be enough, eventually. But it wasn't even close. And despite my husband (then boyfriend) being brave enough to come along with my daughter and I and start this new life together out west, it just never felt right there. We just couldn't get settled. We couldn't get to a place where the future we  had pictured together seemed possible. We couldn't define what needed to shift. And despite crossing the 30's threshold, we couldn't possibly imagine starting a family in that life and place.

Through all of this, my daughter moved into her teenage years, and despite being very close when she was younger, she suddenly wanted nothing to do with me. It became painfully obvious that though my school was finally done and I was ready to focus more fully on her, she no longer had any interest in focusing on me. That ship had sailed, so to speak, and I had missed my boat. That was hard. That was very hard. And it made me reflect a lot on my plans to start a family again soon. The role I wanted to play in my new children's life and the type of mother I wanted to be. As my regret grew, I also stopped giving a crap what other people thought about how capable I was. I had gotten a PhD for cripe sakes. What more could they expect of me? And it was my right to decide what I wanted to do with that degree from that point on. Obviously, it was always my right. But that was when I finally realized it.

So anyways, long story short, with my boyfriend's blessing, I quit my high paying job and decided to become a stay at home mother with over $100K in student loans instead. It was a rough few years of transition. At this point, my husband finally makes a pretty decent income. Almost as much as I used to (and adjusted for the midwest, probably a lot more). But with three kids, primarily one income, and a student loan payment of over $600/month, it never goes as far as it seems like it should. It's going to take us a while to get out of this mess. And though we are now over 4 years into this new life path, it's hard sometimes to accept where we are now compared to where we used to be. Hard to know that we will probably never live in a beautiful home/location like that one ever again. That it will be years, eons, before we can afford another fancy trip. That given the realities of our budget, money is going to continue to feel like a struggle for probably at least another 5 or so years until I'm working again. My husband and I find that hard. And depressing. And Dave would probably just say "What did you expect!?!"

...A chance to live a life much different than the one my parent's gave me I guess. A chance to feel like I had enough money to never be trapped in a relationship that was bad for me. A certainty that my children would always have enough to eat, as well as year books and new clothes and maybe even stories about trips to Disney World with our family last summer. I probably didn't need a $100K education to secure all those things, but it was an emotional journey for me that took a while to figure out.

For now, I comfort myself with the fact that though this is not always the life of my dreams, it is finally the life of my choice. I am choosing to be much poorer than I could be. I am choosing to temporarily give up most personal and intellectual pursuits (though I did start a secret blog!) so that I will have fewer regrets next time about the mother I am to my children. I could do it differently, and from time to time I check in and make sure this is what I still want. So far it is.

How We Got Into This Mess

I’ve been starting to find a lot of good debt blogs, which I’m hoping to provide links to on my own blog soon. One type of post I’ve noticed on some of these that I haven’t yet done here, is a debt history entry. Or as I’ve titled it here: “How We Got Into This Mess”.

Sometimes I’m a little surprised to find myself here, because back when my husband (then boyfriend) and I were both working 6 years ago, there was a point where we were making quite a bit of money.  During that two year period, we managed to pay off all the credit cards we had at that time (due to divorces and our big move west for my job) as well as the remainder of hubby’s student loan. We did not, however, manage to save a dime towards retirement or anything else. And we went on at least two fancy trips. And ate out a lot. And didn't even look at price tags in certain stores. We also did not own a home at that point, and were paying a small fortune to rent a very nice one (we needed one with with space for our huge dog to run!), while paying only the minimum on my student loans.

Each month we wondered how we could possibly make so much money (some months we brought in more than $10K total - after taxes) and still have nothing left to save towards a house or retirement by the end of the month. I have a few defenses for this. One is that I was less than two years out of graduate school (finally!) and after having been a young, poor, and mostly single mom for that difficult 11 year period, I had a big wish list for life. I needed some fun time. Additionally, my field was very specialized, and required us to live in a very expensive area on the west coast. We were both completely shell shocked by the cost of living adjustment our first year. The price of things like cheese always floored me. Plus, Hubby and I weren't actually married yet at that point, and despite entering our 30's, we were simply not ready yet to buckle down and get serious about financial planning.

So that’s my list of reasons, minus a lot of things I could say about hind sight that you can fill in for me if you like. That period of my life ended almost 5 years ago when hubby and I made the difficult, but long coming decision for me to quit my job (or really career in this case) and move back to our hometown in the Midwest. At that point, we did begin to reign it in a bit in preparation for the 60% reduction in income we would be undergoing in a few short months. We stop planning for the next big vacation and started planning for the journey home instead. We cut back on spending, and put a little away each month for the huge moving expenses we knew from experience that we would be racking up soon. Not nearly enough, but it helped. And I began to look into information on starting a new home business.

We made a mix of good and bad financial decisions over the next few years, but also worked very hard. That first year back, I often spent upwards of 50 hours a week laying the groundwork to get my business up and running, and even took on housecleaning jobs in the meantime until my cash flow became more regular. Thankfully, hubby's job was able to come with him on our move, but the recession had just kicked in and there would be no cost of living raises that year. We had a few thousand in credit card debt again from the move we had to pay on, but we put my student loans on temporary forbearance (which sadly wiped out all progress we had made thus far).  My daughter had hit the difficult teenage years, and no matter how much we made, it could never be enough to acquire all the things she was certain she needed (and that every other person she knew already had). Additionally, I felt bad downgrading her too much from what she had become used to at that point, given that the second move was hard enough on her, and certainly not what she had wanted or expected. In all honesty, we had a bit of a hard time adjusting to all of that ourselves actually, and though our rent was much cheaper than it had been out west, it was still much more expensive that what we probably should have taken on. But we felt we needed to step into our new cost of living situation gradually, so as not to give up everything we'd had all at once.

Now that we were back in the much more affordable and homey midwest, we finally felt able to settle down and begin working towards our future together. We got officially engaged and started looking into homes and saving for a down payment. I settled in to my new work routine and despite how much tighter things were, we managed to put away at least $700/month during most of that first year. And though I feel our wedding was perfect, it was a small, elegant but inexpensive, at home affair that did not set us back too much more. Can't say the same for my amazing ring though. (I made it clear there was no way we were spending less than he spent on his ex and I still do not regret that!) We also had a short, but sweet honeymoon that added a little more. And within two months of all that shenanigans, we dropped all our saving and then some into our new house.

Despite putting a little more on the cards to get all settled in, I think our house was a good purchase. A huge step down from what we'd had out west, and more than $1000 per month less than our rent had been even after moving back to the midwest. But a respectable, comfortable, suburban home in a good neighborhood none the less, with a payment we could afford. We bought it at what was the market low (at that point) and with a great fixed interest rate, and it has plenty of room for a family. Therefore, we immediately jumped into the next stage of our long term life plan - babies! And what with that first "Holy Shit" ultrasound, and the later preterm birth that twins tend to bring, less than 12 mos after we said "I do" we had two of them! Not to mention a lot of unexpected time off from work (and savings) on my part due to bed rest.

Somewhere in all of that, there was also a long distance wedding trip, a number of car issues and more than one or two home owner issues as well. We did not have an emergency fund yet at that point, so anything extra was a problem. Plus, my daughter had turned 16 and begun driving, and no matter how crappy a car you give them, the insurance still sucks. Its no secret that kids tend to be the most expensive at the bookends of your 18 years with them, and unfortunately we had some on each end. I had to keep my work hours while I was breastfeeding (and not sleeping) to less than half of what they had been pre-baby. We started getting a grocery delivery service rather than shopping ourselves, despite the extra expense, cause we couldn't figure out how to manage life without hating each other otherwise. And as thankful as we were for hubby's work from home job that came with us on our big move, it was far from competitive in pay (though excellent in health coverage thank goodness), and yet we just didn't feel like we could manage him finding something out of the home until we got closer to the boys first birthday.

Lest I mislead you, there were some toys in there too. We got a new flat screen tv, and we had cable, netflix and audible subscriptions. We both got iPhone 3's when the 4's came out and have since upgraded. We got a new laptop when the old one died. We ate out a couple times a week at least. We took a couple modest vacations. We purchased memberships to the zoo and museum. We weren't partying, but we weren't suffering.

None the less, fast forward to about 18 mos. later and we have finally begun to catch our breath again. Hubby did find a new job outside the home that pays much better (though that required me to cut my hours even more initially, and necessitated another car purchase). We stopped hemorrhaging expenses and started simply treading water instead. I think its been over a year since we even used a credit card,which means we have mostly gotten the hang of living within our means (pre-child support loss at least!). And we did finally get an emergency fund going. But its been pretty clear that we haven't made much of any real progress towards wiping out the debt we accumulated either. And as we slowly inch towards the end of our 30's, it is clear that the time to start planning for our financial future is now. Like, so right now, its yesterday.

So that's how we got here. Nothing completely stupid I don't think (well, maybe ring. But since I'd do that one again, I don't think it counts), though lots of things we could have done a bit better. And today, on this Thanksgiving Day 2012, I am thankful that hubby and I have both the means and dedication to tackle this massive financial overhaul, so that our future can be a bright one.

The Big Picture

This may be simply an exercise in idealistic dreaming, but I want to paint for you (or maybe mostly just me) a picture of how I see this new financial plan unfolding for us in the coming years. Cause I have big, unrealized but hopefully not unrealistic, dreams. In Dave Ramsey's book, he tells you that it takes most people about seven years to reach Baby Step 7: Build Wealth. Longer still to get to the Pinnacle Point where your money finally starts working harder than you have to. Certainly, that is the long term goal. And the short term goal is the credit card/car payment debt payoff I've already outlined. But it'd be nice to have a picture of our mid-term plan as well. Especially given that I don't think we will be following the Baby Steps precisely.

So, one year out, give or take a few months, and hopefully our small debts (non-mortgage/student loan) will be paid off. At that point we will hopefully be more used to getting by with a lot less monthly discretionary income. Maybe we can at least add enough back in to be able to go on monthly date nights again though. But I don't want to get too slack because we still have a lot or work to do. Baby Step 3 is to Finish the Emergency Fund, which he defines as 3-6 mos. worth of expenses. For us, that would roughly be $15K-$30K.

Projecting out both raises and expenses, once we get our small debts paid off, I think we could save roughly $25K/yr. So, that should take us 7-14 mos. depending on how much cushion we want. My thought is that we should save as much as possible, setting aside the minimum $15K to touch only for emergencies, but then factor in the fact that our family SUV will be 15 years old (already has 223K miles) by then. I am fine with driving it until it dies, but its pretty much a given that that is going to be before too much longer (please, please, please not this year!). I am also fine with not getting a new car when it does die. But I would prefer to get something gently used with at least a few more bells and whistles than our current one has. I think we could probably get something 5-6 years old for between $15-$20K.

That's not the only big ticket item we need to save for though. In a few more years, the boys will be ready to start school and I will be more than ready to jump back on the career train. But that is probably going to require a bit of retraining on my part, and I am not willing to take out any more student loans. (Above and beyond the $105K I already put my foot down on of course). So, if I want to go back, which I very much do right now, we will need to save for that too. I am conservatively estimating about $20K for that right now, plus after school daycare (maybe $5K? Though that will be more of an on-going expense), but given the rising cost of education these days, who knows?

The point of all this speculating is to point out that with these extra purchases, the time it takes up to save about $30K for an emergency fund is going to be more like 2-3/4 to 3 years rather than 14 mos. That's a long time. And who knows how many set backs there might be in the meantime. At some point, hubby's car will need to be replaced as well, though it is 5 years newer than the SUV at least. But I guess I'm okay with it as long as we get to Baby Step 4: Retirement Investing, by the time I re-graduate, which I am predicting will be in 5-6 years. If we get to that step before I graduate, then I guess we will start putting at least the company matching amount into hubby's 401K. Actually, if we don't get to that step before 40, we probably should do a lot more than that, and I kind of doubt we will. Once I do graduate and start working again though, we are going to kick step 4's butt.

And then we get to Baby Step 5: College Funding for the kids. Except we're going to re-package that one as college payoff for the adults. By then my daughter will be done with college (or darn well better be at least). Until we get fabulously wealthy, I have done the best I can for her by insisting that she go to a school where she would graduate with a maximum of $40K in debt. Still a lot I know, but less than half as much than me, and within the amount considered reasonable by the income to debt calculators. She hated me for it at the time, but now seems mostly happy.

I am hoping that with a new masters degree I will be able to make at least $50K, although about half of that will probably have to go towards retirement, and the rest will get taxed. But lets just say that after stocking up our emergency fund, we have about $25K/yr extra from hubby's income and $25K/yr from mine. So $50K/yr extra after I start working to do with what we will. (OMG, is that really possible?) What to do with all that cash?? Pay off my damn student loans!! If we stick to the plan, that should take us only two more years. At that point, we can look into some minimal investing for the boys' college (and maybe some back pay for my daughter). But they are going to be expected to chip in as well because we are heading off to...

...Baby Step 6: Pay Off the Mortgage! Honestly, not quite sure what's going to happen when we get to this step because you see, before we focus on paying off the mortgage, we'd like to focus instead of getting the house we'd really like to have. The exciting thing is, once the student loan is paid off, we could afford about $600 more per month for a mortgage without changing anything else. Assuming the market continues to improve, we should also have a fair amount of equity at this point, having lived here for about 11 years. I am not sure yet whether we would rather buy or remodel. It will probably depend a lot on the location of our jobs at that point. There are some things I really like about both this home and this area, but our home was built in the 1960's and it really needs some updating. I think it would take between $175K-$200K to get it to where we want it, and only about 60% of that could be recouped in re-sale value. Whether or not that's worth it will depend largely on what we could get for the same value given the housing market at the time.

I also really like Dave Ramsey's idea of taking out only a 15 year mortgage and keeping your mortgage payment to less than 25% of your take home pay. Whether we decide to buy or remodel,  I do very much want to keep those rules in mind. After all our hard work, I certainly do not want to end up house poor. It will be hard to feel like we can't afford just about whatever we want once we've taken care of all that other debt. And I do love big, pretty homes. Nonetheless, regardless of what we choose to do, at that point it should be a maximum of 15 years until we are entirely debt free, and if we continue with the $50K/yr rule, I think we could take that down to 6 years.

Which means this is more like a 14 year than a 7 years plan for us, but by the time we enter our 50's, it is very possible we will have no debt remaining (maybe we'll bump up the boys college fund at that point) and hopefully by the time we hit our 60's we will have reached that fabled Pinnacle Point which will leave us set for a long, happy retirement. Its certainly not a get rich quick scheme. which makes it seem somewhat more believable. Though it will certainly require a lot of dedication and sacrifice. But it seems like by the time the boys graduate from high school, we will finally have both the time AND money to do all sorts of things.

So that's the big picture. And now back to Baby Step 2.