Ned and Darla: A Nerd’s Guide to Student Loans

If you read the previous Ol’ Ned post, I’m sorry.

As my smokin’ hot wife pointed out, it was prematurely posted, for I received new information later in the same day that pertains to student loans.

And I left out some stuff.

Some good stuff.

Let’s try it again.  And this time I’ll spare you the ridiculous intro.

Ned really did ask me if he should pay off his smaller loans or bigger loans first (student loans).

Ned’s case is similar to mine: a lump sum payment that consists of multiple sub-loans with different interest rates assigned to them.

Example:

Ned’s loan breakdown might look something like this,

$1500 @ 6.8%

$3300 @ 5.4%

$6000 @ 4.8%

$2000 @ 6%

And so on and so forth.  I assure you it looks way worse though.

Ned’s monthly minimum payment will be each of the sub-loans monthly payments broken down individually after applying compound interest DAILY and dividing by 120 (10 years, 12 months per year).  Then those payments will be added together.

$1500 @ 6.8%  –> $24.67/month

$3300 @ 5.4%  –> $47.19/month

$6000 @ 4.8%  –> $80.80/month

$2000 @ 6%    –> $30.37/month

total = $183.03/month

If you don’t believe my numbers, look up the compound interest formula and plug the numbers in for yourself.  But you should just trust me.

Compound interest is the 8th wonder of the world.  He who understands it, earns it…  He who doesn’t, pays it.  —  Albert Einstein

Sometimes certain loans will not begin accruing interest until you’ve graduated.  Some will begin as soon as you get them.

Those numbers would get tricky.  So for the sake of time and my sanity, the above numbers were configured assuming that Ned’s interest began to accrue the day he started paying them off.

Which to my knowledge never happens.

(Look up the difference in subsidized and unsubsidized loans.  One starts accruing interest immediately and the other doesn’t.  Or somethin’ like that.)

A crappy characteristic of loans is that interest comes off first.

This process has a fancy name, but I’m not going to use it because it’s dumb.

(Unless it pays me)

Seriously, I’m not fully educated on the true meaning and really these terms only make things more confusing.

Brilliant business plan really.

“So who is our target customer?”  –  dude 1

“The common folk.”  –  dude 2

“Well then we need to make up some words so we can rob them legally.”  –  dude 7

The best way to deal with it is to not look at how much of the minimum monthly payment is interest and how much is principal.  You won’t like it.

They know exactly how much money you will owe over the course of 10 years if you pay the minimum.  That’s how they determine those monthly payments.

Look at this:

$1500 @ 6.8% with a minimum payment of $24.67 over 120 payments is what??

$2960.63

That’s a lot of interest.  Nearly double the loan.

Listen peeps, I understand profit.  I’m for it.  Profit is necessary for an economy to grow and be sustained.  But often times it does not sit well with me, particularly when the powerful feed on the powerless.

Because make no mistake about it, someone is getting filthy rich off of your debt.

Back to Ned’s question, which insinuates that he is very well aware that he needs to combat the federal government…

I mean his student loans…

Let’s say Ned is on month #1 of his loan payoff, so he owes $183.03.

Pay it.  Let it clear the bank.  Let it clear the student loan website (I can’t use company names in my posts, so let’s call them Sallie Mae, or Navient, whichever you prefer).

Once it’s cleared, go back and make another payment.

Let’s say Ned has $200 over the top in month #1 that he wants to put towards his loans.

The reason you need to make 2 separate payments is because if Ned wanted to make 1 payment of $383.03, it would all be dispersed the way Sallie Mae wanted it to be dispersed, which will be spread out over all four loans.

And we don’t want that.

We want to focus on one at a time.

So Ned will go back and will now be able to apply all $200 toward whichever sub-loan he wants and it will go 100% to principal.

So…

$1500 – $24.67 = …. not $1475.33

I really don’t know how much of the payment is interest, and I can’t find it ANYWHERE on the search engines (not mentioning any until the pay me), but it’ll look more like $1495.

Sickening, I know.

But after applying $200 to this loan, it looks like $1295!

Now when Ned comes to month #2, Sallie Mae is going to say his monthly payment is $158.36.

Sallie Mae does not want you to make another payment towards the $1500 loan this month.  They want it to continue to accrue interest.

So always ALWAYS ALWAYS budget for your original minimum monthly payment.

Pay the minimum in month #2 ($158.36).  Then go back in once it’s cleared and pay $24.67 (your original minimum anyway) towards the $1500 loan.

You haven’t gone over your monthly budget.  And you’re fighting interest.

Fight the good fight!!

Dang, I still haven’t answered Ned’s question.

Small loans or big loans first?

I say small.

You could do the bigger loans first.  It may not make a ton of difference either way.  But which one seems more attainable?

In my case, the smaller loans had the higher interest rates, but I’ve been made aware that this is not always the dealio.

Without discussing numbers, I advise you to pay off the smaller loans first because it’s quicker, easier, and ADDICTING!

You’ll see after that $1500 loan goes away how exciting it is.  You’ll see an end in sight.

So there ya go, Ned.  Now tell everyone to subscribe to my website.  I know people are in debt.

Onward to Darla.

You should know by now that Darla is not her name.  But she is real.  And she really did ask me about her student loans.

Darla is less than a month away from completing her master’s degree.  Very awesome for her.  I can’t wait for her raise so she can fix her oven and we can continue family dinner night.

Just kidding.

About some of it.

Darla has a single loan, and it is already accruing interest.  She read the original Ol’  Ned post and asked if she needed to make two separate payments on hers.

She does not.

But I still would.  Because I like to be absolutely certain that my principal only payment is, in fact, principal only.

But it most likely won’t make a difference.

And if you are in the same situation as Darla, a second payment in the same month will likely result in the following month to show a balance due of $0.

That’s ok.  Just make sure you still  make a payment.

Don’t ever miss a payment.  And don’t ever be late.  In any type of loan.  Or bill in general, for that matter.

Eat saltines and drink water if you have to.

Make sure that wife and baby are well-fed though.

Lunchroom Pizza

I loved lunchroom pizza.

I don’t know the demographics of public schoolers vs. private schoolers vs. home schoolers vs. non-schoolers, but I can imagine most of us were enrolled in public schools.

But as I found out last week, our lunchroom was not fancy schmancy.

I mean… I knew.  Trust me.  It was a small school in a small county in the state ranked in the bottom 5 in everything but cows and catfish.

That is to say, I knew it wasn’t the best around.

But I wasn’t sure to what extent.

Then a buddy of mine dropped a bomb on me.  He went to a school where there were 2 different lines in the lunch room with DIFFERENT FOOD TO CHOOSE FROM!!

Hooooooooooold up….

You tellin’ me if you didn’t want caviar and lettuce wraps you could go get a burger?

“Yes,” he says to me all matter of factly, confused at the tone of my voice.  Quite pompous really.

Goodness gracious… we had 2 lines.  So we could keep the lines a flowin’.

But there was 1 food option, unless you wanted salad (girls) or nothing (non-humans).

I just so happen to be non-girl and non-non-human.  So I ate that lunchroom goodness, and pizza was my fave, yo.

See my mom always made spaghetti at home, a cheap and easy delicacy that I still love to this day.  It’s even better the day after, heated in the microwave for all those keeping the books at home.

We’re actually having it tonight… What an awesome world…

Anyway because of having it at home I didn’t want spaghetti at school.  However, it was so popular with everyone else because their parents made chicken fingers all the time.

Chicken fingers??  They make those outside of school??  I was so jealous upon receiving this information, because I also loved chicken finger day.  Or fried chicken day in general.  It normally landed on Thursday.  Pizza day was Monday.

Now that I think about it, they had a solid schedule goin’ on.  They knew Mondays sucked, so they threw some pizza goodness in there.  With fries!

I forgot about the fries.  They were always the main side with pizza, and that does not make any sense at all.

But I didn’t complain.  I had pizza and fries.  Who cares if I have practice after school and a combination of such foods sit heavily and painfully on the tummy?

The thing that bothered me about pizza day though was that lots of people didn’t like it.

They didn’t like pizza day.

They were above it.

They = wimpy, snobby little children from a town that boasted a population of about 26

above = higher, mightier, holier, more deserving, etc.

it = pizza day

Now… don’t get me wrong, if you could see the pizza you might think Oh those poor children have to eat that??

But you just haven’t tasted heaven.

Much to my disappointment, my late public educational career brought with it a new style of pizza in our highly convenient styrofoam trays.  And it wasn’t near as good.

I’m still mad about that.

Sigh…

Our public school system offered (and still offers I’m sure) free and reduced lunch based on total household income.

My parents were divorced when I was very young.  Our school was divided into 3 sections when I was there; Kindergarten was stand-alone, elementary was grades 1-6, and high school was grades 7-12.

I can’t remember exactly all that transpired and when but before I started kindergarten I know my 2 brothers and I lived with just my mother.  My mother had no stacks on deck, mind you.

No, we never missed a meal.  We never had to walk 20 miles to get anywhere.  We never were evicted (though I do think my Mom was close once).

I can’t say for sure if we ever got free lunch.  I think there were a few years when we did, but I am absolutely certain that we never paid full price for lunch.  It was a pretty significant reduction.  Full price for lunch was $2/day.  Reduced lunch was $0.40/day.  I could eat lunch for a week for the price that others would pay for a day.

I obviously am very grateful for it now because I know how much it helped Mama.  Instead of paying $30/week for her three children to eat lunch, she paid $6/week.

But even at a young age I was embarrassed of it.  I didn’t want anyone to know.  Even my best buddies.

It’s amazing how money is such a touchy subject, especially when you have no control over it (i.e. an elementary student).

But kids are mean, and I had no idea how people would react if they knew.

I’ve found that the same fear translates into adult life.  It’s hard to watch others buy awesome houses and cars and selfie sticks and rental properties and Little Debbie cakes while you sit back with your $0.99 microwave dinner watching your 1972 tube with a rabbit ear antenna wrapped up in aluminum foil to get a glimpse of the local 6 o clock news.

It’s even harder to come up with an excuse not to go eat lunch after church with people you love.

What do you say?

“Uh, sorry, man.  I can’t today I have to go… feed my goldfish.”

“It’s gonna take you all day to feed your fish?”

“I also have to…yes.”

Bad example… The point is I’ve been there.  It’s easier to say than do (as are most things), but own it!

My father, who I will from now on refer to as Pops, summed me up recently in a way I never thought about.

He was talking with a customer at his shop when somehow I and my older brother were brought up.  I’m not sure how name dropping works on these things so until I do, my older brother is Ned.

I’m paraphrasing, but…

“Ned can handle idiots; Kyle doesn’t have time for ’em.”  –  Pops

And I thought about it… Wow… He’s right.

You’re right, Pops.  I do not have the time or energy or resources to entertain nonsense.

But I also don’t have the time or energy to portray myself in a way that is inaccurate.

Therefore, I will not say to you that I can go get lunch and everything is fine when it isn’t.  I’ve done that before.  And I was tense the whole time stressing about all the money I don’t have.

Not very enjoyable.

So the reason I can’t get lunch is this:

I would love to, but I have already reached my dining out quota for the day/week/month/year/decade/lifetime, and I really Really REALLY wanna get out of debt.

Some will offer to buy your meal, which you accept greatly.

Don’t take away their blessing.

One day you’ll be out of debt and remember that day and pass it on to the next guy or gal.  And so on and so forth.

The key here is budgeting.

BUD — GET — ING

BUDGETING.  BUDGET.

I don’t care how you say it.  I don’t care if you mispronounce it.  I don’t care if you don’t say it at all.  I don’t care if you use a different word and mispronounce that one!

BUDGET!

Budget everything.  Know exactly where every single penny is going.

Set aside money for gas in your cars.

Set aside money for groceries.

Set aside money for miscellaneous crap.

Set aside money for free and fun time.

See?  You can still have fun.  It’s actually a requirement from me.  If you are going to listen to my advice, you better listen to all of it.  Enjoy yourself, especially if you are married or engaged or in a real relationship that’s leading somewhere.

The idea is to not get out of control.

I budget monthly, but I break down groceries and miscellaneous into weekly sub-budgets.

When my wife and I were first married and for about a year, our weekly expenses on groceries were a very meager $40/week.

And I still get upset thinking about that.  Our first year, 2012, brought a combined household income of less than $20,000.  That was before taxes.

I’m not mad about it really.  But I don’t want anyone to EVER experience telling your wife that she can’t get something she wants from the grocery store.

Because I have, and it is miserably wrecking to a man’s spirit.

So takeaways:

lunchroom pizza = awesome

having less money than others = ok

budgeting = necessary

telling your wife no = never again

please please please please please…. budget now.  Benefits will come.

Do Not Conform

So I used a bible verse to talk about money…  What are you gonna do about it?

I believe that Jesus wants us to live fulfilled lives on this earth and in this lifetime.  And as many Americans can agree, debt is not fulfilling.

It is heavy.  It is mean.  It is… interest?

When I first realized the amount of student loans I would have to pay back, I was floored.  But let’s back track and discuss the three biggest lies of our wonderful society.

Lie 1:  Know Your Future

We’re led to believe that at the age of 18 we’ll know what we want to do for the rest of our lives and what school we want to go to for training in said lifelong obligation.  So we run straight into college with what we think we want to do… Why?  Why did I do that?  Why didn’t I learn how to build houses or do landscaping or… record some hit rap albums? (I don’t know what kids do these days).

I digress.  I wanted to play football.  And it could ONLY be for the University of Alabama.  I should mention that I wasn’t good enough (or didn’t work hard enough, whichever way you want to look at it) to play football with Alabama.  My folks always said I was stubborn.  What do they know?

Thus began my college career of not being diligent in the classroom, not playing football, and choosing a major I thought I wanted, telecommunications.  No need to discuss my entire college career, but I did switch colleges and changed my major to undecided, then to math, my point being that I was NOT ready to be my own man at the green ole age of 18.

Anyway…

Lie 2: College is a 4 year process

HA!

Well… it isn’t exactly a lie.  Many are able to finish in four years, but it’s borderline unbearable, an absurd amount of hours per semester and almost guaranteed that these students do have an idea of what they want to do for a living.

But for yours truly, it took five and a half years.  And that was after spending the last 2 years as a diligent student who the lesser folk envied.

They’d all be like “Dude! How’d you make a 103??”

And I’d be like…. “Bonus.”

And they’d be like… “Gah…”

So a Bachelor of Science from Jacksonville State University in Jacksonville ALABAMA!

But it’s in mathematics…. Crap.  I really didn’t think that through.  And not in math education, mind you.  Straight math.

What I’m s’posed to do with that?  I can’t teach:  no education degree or certificate.  I can’t rack up loads of dollars as a titled mathematician:  no doctorate.  I can’t go back and get a masters degree:  well… I can, but I’m not going to because screw that.  You get your masters.

Which brings me to…

Lie 3:  There’s a job waiting for you!

Let me be clear; there are many recent graduates who DO think things through from a young age and REMAIN devoted to their early callings and ARE diligent throughout the process and DO receive job offers upon graduating.  I like to call those people punks.

I don’t know percentages so I won’t use them.  But 99% of people are normal.  And normal people don’t get those job offers.

So here I am, a broke, nay, a POOR college graduate with no job and a future wifey (five months after graduation, we’ll talk about that in a later segment).

Did I mention I had student loans?  Yea.  A lot.  Again, I will talk about how I managed my money in college later.  It’s very important.

But for now, loans.

Did you know the federal government regulates student loan interest?  Mmm… Well it does.  And they normally sit around 6%.  I know what you’re thinkin’.  Not too bad, right?

WRONG!

Student loan payments are set up (most of them) as a ten year pay off at roughly 6%.  Most of mine were 6.8%.  I had more than one…

I can’t remember an exact number, but my payoff amount was sitting just at $40,000.

FORTY THOUSAND DOLLARS!!!!

For a just graduated, almost married 23 year old!

Listen, this is no one’s fault but mine, and I need to make that clear, but it truly was a difficult time.  And I seriously did not believe it would ever be paid off.

Jump ahead a few months to my first job, a subject that I will discuss later (sorry, I know you’re really into my awesome, exciting life).

Not much income flowing in the household, even with my wife working.  We did without some conveniences for a bit, no cable or internet, no new cars, I had a flip phone for a while, and, most importantly, no saving money.

Our minimum monthly payment on my student loans (thankfully my wife had no debt) was $442 once our graciously gracious grace period of 6 months was over.

If you’re doing the math, that’s $53,000 over the course of ten years.  When I realized that I actually called the loan company to make sure it was right.  It was.  And I’m sure I sounded like an idiot to the ever so friendly customer service representative.

But the fact is I was indeed dumb, or ignorant I should say.  I was completely oblivious to the real world as I was all too often reminded of as a child.

The real world is dumb, but a 6% interest rate isn’t so good anymore, right?

There are many resources available that will tell you to pay off loans in chunks and to pay well over the minimum, but the authors of such resources don’t know what it means to be below the poverty line.

I do.  It sucks.  And so does debt.

How does “Do not conform” apply, you ask?  Paul meant it so that we would avoid following worldly patterns.  Money is very much a worldly treasure and the way the world wants you to use it is very much a secular pattern.

Our God is compassionate, and he wants you free from worldly patterns.  Unfortunately, most of us are not so rich that we can carry on in our day to day with no regard for finances.

But we can be good stewards of what we’ve been given.

I will attempt to teach you how.