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Defeat Massive Student Loan Debt With Public Service Loan Forgiveness (PSLF)

You can’t imagine how terrible student loan debt is until you are faced with the bill — for the next 20 years of your life. This was my predicament 5 years ago, after I graduated from pharmacy school with about $220,000 of student loan debt.

I know what you are thinking, “But Christa, that number is outrageous!” Trust me, I know! About $30,000 of my student loans was from undergrad and the rest from pharmacy school. I would love to tell you that I only took out the minimum amount of loans to get by, ate ramen for every meal, and delivered pizzas 8 days a week, but I didn’t. I lived like most college students do without much of a budget. I wasn’t really thinking about my future self having to pay it all back with interest.

The 18-year-old student loan decisions have serious consequences

There is a lack of education concerning student loan debt among colleges. As a student, you are not usually educated about the repercussions of getting yourself into massive student loan debt. You make shortsighted financial decisions that can adversely affect your life for years and years.

Some of the student loan debt is because you are giving “free money” to a bunch of stupid teenagers (I can say this because I was one!). Some of the debt is also because tuition costs have skyrocketed. For instance, the pharmacy school I attended now costs $33,990 a year. This equals $135,960 in tuition for pharmacy school! That doesn’t even include undergraduate costs or costs of living.

Many post-graduate/professional degrees require this significant student loan burden

Many graduate degrees cost hundreds of thousands of dollars. How can anyone possibly afford this? Many need significant student loans and financial aid. I took student loans out because they were necessary for my dream job as a pharmacist. After pharmacy school, I was told that I’d pay for the next 20 years. My student loans cost more than the mortgage on my house!

I’m not the only person in this situation. Some have gotten into debt from graduate school and others have gotten into major student loan debt from undergrad alone. Fortunately, in 2007, the government started the Public Service Loan Forgiveness (PSLF) program.

The PSLF program is for those working for the government or in the public service sector. If you find a job in one of these areas and make on-time, scheduled monthly payments for 10 years, your remaining loans will be forgiven. But there are some important caveats and rules to look out for.

Confusing, right? Trust me, it does seem complicated when you are first starting out. Some people will start to look into it, get stuck, and forget about it. Lucky for you, I’m here to help!

Fundamentals of the PSLF program

What type of job do I need?

Qualifying employment includes:

Those who work for the government (ex- military, public libraries, police officers)
Those who work for public service non-profit company with a tax exemption code of 501(c)(3)

Tip: You can call human resources or even check your companies website for their tax exemption code.

Which type of student loans qualify?

Federal loans that were received under the Federal Direct Loan Program.

If you have student loans under the Federal Family Education Loan (FFEL) Program, the Federal Perkins Loan (Perkins Loan) Program, you can consolidate them into the Direct Loan program in order for those loans to be eligible.

Note: Private student loans are not eligible.

What repayment programs do I need to be on?

Income Based Repayment (IBR)
Income-Contingent Repayment (ICR)
Pay As You Earn Repayment Plan
10-year repayment plan (this is kind of silly since you would have nothing to forgive after 10 years)

What qualifies as an on-time, scheduled monthly payment?

In order to be on-time, the payment must be made no later than 15 days after the due date.

For the payments to count, scheduled monthly payments should be in active repayment status. You can’t be in a grace period, forbearance, and/or deferment.

Object Wealth Christa — *Christa from Object Wealth*

Where can I find out more?

You can go to the Federal Student Aid website. They have a bunch of information regarding student loans.

You can also come visit me on my site where I talk about all things personal finance, including my step-by-step guide to the Public Service Loan Forgiveness program.

This is a guest post from Christa, the founder of ObjectWealth.com, a blog on personal finance and her journey to go from massive debt to building financial independence. She is also a hospital pharmacist and loves watching Game of Thrones (even though it gives her nightmares).

Personal Finance Gurus Fail With First Generation Savers

By Frugaling 3 Comments

The struggles of a first generation college student

Join me on a small aside — I promise it relates. An organization called the College Board is responsible for creating the Scholastic Reasoning Test (SAT). This exam is one of two major college entrance tests (the other is the ACT). Score high enough on the SAT, and you could attend almost any university. Likewise, entrance scores can often influence the level of aid given to entering freshmen students.

One variable can influence your SAT score, admission chances, aid opportunities, and much more; it’s called, first generation status. These college students are the first person in direct, immediate family to pursue a secondary education. Essentially, parents of first generation college students must not have attended college themselves. Born and raised in a family without ties to college can directly affect your success in higher levels of academia.

In nearly every category, with decades of data, they’ve found clear differences between first generation and non-first generation college students. College Board researchers have found that first generation college student are less likely to take preparatory courses for the standardized exam, take fewer advanced placement courses (AP) prior to college, and are less likely to take accelerated math courses. These are just a few of the hurdles for these disadvantaged students.

Family role models for academic success can be scarce. Study habits may not have been learned. Monetary support may be nonexistent. First generation students may struggle to connect with peers on campus. All of these factors raise the risk for dissatisfaction in school, higher dropout rates, and mental health concerns. Frankly, it pays to have family ties to education.

Similar status as a first generation saver

Maybe you’re wondering, “What does all this college student talk have to do with personal finance and money, Sam?”

I’m glad you asked.

Similar to college, first generation savers face serious tests — analogous problems exist. Lessons are passed down from generation to generation. Inheritances can be shared and kept within families. Strong principles and techniques for smartly minimizing individual tax responsibilities are taught. (Heck, how do you think Romney only paid about 14.1%?). First generation savers frequently have friends in comparable financial predicaments.

Starting, customizing, and following a monthly budget are learned. It helps if your parents teach you. Additionally, when you can see how they save and manage their money in action, a good cycle can be learned. The first generation saver doesn’t have the opportunity to learn from parents. As the first savers in a family, they’re bucking a pattern of money mismanagement — the waters can be murky, challenging, and lonely.

Jim Cramer Tulane University Photo — *Photo: Jim Cramer at Tulane University (Credit: Tulane Public Relations)*

Is willpower the key ingredient to saving?

Personal finance gurus stress individual power, will, and grit. They propagate unscientific expertise that suggests they have the tools to balance your budget, reduce debt, create emergency funds, and retire with a sizable nest egg. For the most part, their help and advice can really help. Unfortunately, their one-size-fits-all advice isn’t often tailored for first generation savers.

Willpower-based economic education is far too common. It’s the ill-conceived bumper sticker of American personal finance policy: one must have the will and energy to save — that’s all it takes. Otherwise, you’re a lazy failure because you cannot commit to these steps.

I’m afraid that does an injustice to more multicultural groups who don’t necessarily have the same role models and social support for financial success. Frankly, most personal finance advice is distilled and created for a certain population; one that has the means to believe in free will and individual power.

We need more diversity among financial gurus — socioeconomic statuses, races, genders, persons with disabilities, and more. Voices need to come to the table and share their individual experiences. While some advice and feedback may not fit, there’s hope in knowing that more people are out there sharing openly and acknowledging the team effort that’s necessary to come back from tens of thousands in debt.

I Just Paid Off A $25,000 Student Loan!

By Frugaling 30 Comments

Remarkably, over the course of this year, I’ve completely changed my budget — both in spending and income. The aim is simple: I want to destroy my student loan debt as rapidly as possible while in graduate school. Over the last few months, I’ve deposited more than ever into the federal government’s coffers by paying everything off early.

In August, one of my student loans — the unsubsidized at 6.8% — was actively gaining interest and sat around $25,000. My debt had metastasized and was snowballing into a serious concern. I thought I was doomed to this reality until I started Frugaling, found more ways to make money, and prioritized debt reduction. Then, it all clicked, and debt started disappearing.

Today, I’m shocked and proud to announce that I’ve paid off the biggest hurdle. The $25,000 loan in August now sits at $0 — completely paid off. Instead of losing thousands of dollars over the years and struggling to pay it all back, I have shortened everything. Now, it’s gone!

Unsubsidized Student Loan Chart Debt Question — *My unsubsidized student loans were going crazy. In August 2013, they reached $25,000. Now, they’re completely paid off!*

I know this is shorter than normal, but I just wanted to share this little achievement with all of you. Trying to keep personal finance… Well, personal!

Thank you everyone for your support and help thus far. I have a ways to go, but this is the biggest mountain to climb.

Would You Honestly Answer This Debt Question?

By Frugaling 11 Comments

Fork in the road flickr creative commons debt question — *Photo: flickr/sacks08*

The first-year anniversary of Frugaling.org is right around the corner. It’s been over 11 months since I started this journey and a tremendous amount has changed. Today, I’m taking time to reflect on what started it all.

How much debt do you have?

When I was asked this debt question, it seemed invasive and prosecutorial. The consequences were unfathomable and unknown. I remember feeling awkward, heavy, and embarrassed. I knew the number right off the top of my head, but saying it aloud made the situation more real. The answer to that question was personal and private. I was almost ready to react in defense of my debt!

I briefly thought, “I’m a student, I need this debt! It’s necessary! Look at other people! Hell, it’s an investment in my future career!” Can’t you read and feel the dripping indignation?

The question appeared to be an oxymoron, too. Frankly, I had less than nothing. How could I have less than nothing?! Nearly $40,000 in debt between credit cards, student loans, and a car loan, I didn’t own anything. Instead, banks owned me and all my stuff. With student loans, you either pay them back, enter a special governmental program for forgiveness, or you die. There’s no option to reduce your interest for good grades or make it magically disappear — not even bankruptcy can save you.

Despite the internal pressures to keep quiet or lash out against the person asking this loaded question, I decided to follow down a different path. I responded hesitantly — not knowing the response I’d receive — but also with combination of authenticity, genuineness, honesty, and openness.

Sharing the big, scary number

I plopped out this turd of a number: “I have about $38,000 in debt right now.”

The heft of that number and all the social pressures surrounding it seemed to be lifted. The veil of privacy and secrecy around my debt disappeared. Suddenly, I felt freer. Over the coming months, I began to tell more people about my problem. Some people reacted in shock. Others shrugged their shoulders and admitted they had more than me. Seemingly, my vulnerability and authenticity encouraged others to share their honest reactions and their own debt stories.

I wasn’t alone anymore with this staggering number. I wouldn’t be kept up at night anymore. Being able to share my story enabled me to take responsibility for errors and realize how I could improve. The two combined in perfect harmony into Frugaling.org.

The pressures of society are powerful

I was worried about the stigma of debt. I noticed in popular media and casual conversations that debt was comparable to ill morals. Poorer people are vilified for making mistakes and not working hard enough. I was told that if I share my bank statements and my debt load openly that that was tantamount to indecent exposure. Maybe they’re right, but by facing my problem head on and sharing freely, something beautiful happened.

After I started Frugaling.org, I began to pack more lunches, choose more affordable clothing stores (haven’t purchased anything in 8 months), make a budget I could actually follow, and radically reduce my debt. I made more money and paid my loans off in huge chunks.

Being honest and risking rejection was one of the most difficult things I’ve done. But I’m certain now that this openness is the strongest method and pressure to fixing a bloated, dangerous debt course. Changing the path can seem difficult — you’re going to want people supporting you. By admitting your debt load, you’ll be making your first step towards zero and have a team of people cheering you on.

Have you shared your total debt with other people? What was it like sharing your story? How do you find support in your journey back to zero debt?

Defeat Massive Student Loan Debt With Public Service Loan Forgiveness (PSLF)

The 18-year-old student loan decisions have serious consequences

Many post-graduate/professional degrees require this significant student loan burden