I am 27 years old. In November of 2018 after my 6-month grace period for student loans, I owed $97,000 in federal loans ($122,000 total, with 25,000 in private loans).
In November of 2019, I owed $87,000 in federal loans. For the sake of this blog post, I will focus on my federal loans only, as they are the most cumbersome.
My monthly minimum, per Nelnet, my loan servicer, was $1100.
I paid $1,400 – $2,000 each month for the first year of November 2018-2019, well surpassing the monthly minimum. At the end of the year, I had paid $17,000, yet only $10,000 came off of my principal balance of 97k…
That means 42% of my money went toward interest in the first year of paying loans, and that was paying well above the standard 10-year repayment plan minimum amount of $1100.
Yes, I did have high interest rates between 6-7%, but still, that is an astronomical amount of money going toward interest. If I am paying about 1.5x the monthly minimum and still losing this much money to interest, then the plight of others is much, much worse.
Throughout winter 2020 I started paying $2,000 per month regularly, thinking I would make some headway. Maybe I did. But during those months, I realized that I had to research some different repayment options. Even looking at the prospect of paying these loans for 7 years was terrifying for me, and that’s 3 years short of the standard plan.
During the start of COVID, I was repurposed to work in the nursing home that is attached to the hospital where I work as an occupational therapist. One morning, I was sitting and chatting with one of the nurses about retirement. At this time in April, I was becoming more interested in early retirement, talking about it with my other coworker Val.
At this point, I had already opted in to max out my employer’s 403b plan @ $19,500 per year. Our employer also has a Money Pension Plan that gives each employee 7% of their gross salary to invest, with full vesting at 5 years.
So while talking with this nurse, she mentioned the FIRE movement, and reacted as if I should know what it is. I had no idea.
This nurse is in her late fifties, planning to retire within 5 years. But she started telling me about all the things she would have changed in order to better prepare herself and family for retirement.
I went home and googled the financial independence, retire early (FIRE) movement. Essentially, the concept is to create a portfolio of investments during a young age that will compound interest over the long term. You also save a large portion of your income, think 50% or more, instead of the recommended 10-15%, maybe 20%.
Doing this, you can achieve financial freedom in around 10-15 years, regardless of your income, and then live solely off your investments. You theoretically do not need to work another day in your life. The math is this: calculate your annual living expenses and multiply them by 25. This is the amount you need to save because when you have that amount, you can withdrawal 4% each year safely from your portfolio, and this 4% is equal to your annual living expenses. This is known as the 4% rule.
I found some super informative blogs that were both helpful and overwhelming with a ton of financial lingo that I had never heard of. Taxable accounts vs tax advantaged accounts. Low cost index funds. 401k/403b/457/TSPP. Roth IRAs. Tax loss harvesting. Tax gains harvesting. Backdoor Roths.
Maybe some of you live in the financial world, but I’m not one of them. None of these words meant anything to me, yet they would become very important to me over the next year.
I ordered a lot of books and read a ton of blogs during my free time. They helped me to re-shape my perception of money and my relationship with it. By working 40 hours per week, I am trading my time for money. It’s that simple. Even though I was paying off my loans slowly, I was in a circle of trading my time for money, in order to pay for things that I didn’t have time for.
If 1/3 of your life is spent sleeping, and 1/3 of your life is spent doing household chores/running errands/driving/raising kids, etc., you have 1/3 that is free. I’d much rather be using that 33% of my life as I WANT rather than working because I HAVE to.
I’d love to have more availability to explore the backcountry where I live. I’d love to have Zeph teach me more fly fishing without feeling the pressure of getting to bed by 11pm when there is constant daylight. I’d love to camp for more than 1 or 2 nights because that’s all the weekend allows for.
I’m in a position where my job is a means to an end. Do I like my job? Yes. Do I get a lot of positive social interaction at my job? Yes. But do I want to spend my whole week there? Absolutely not. My mind is always wandering and dreaming of the next place I can go. I desire to live a semi-nomadic lifestyle. Certainly not a life where I am stuck in one job for 40 years working the same schedule day in and day out.
There is nothing wrong with doing that if that is your passion. The FIRE movement is not the only and/ or best option for everyone. I tend to think that as time goes on, I won’t be one of the strict FIRE followers.
Instead, for me, it would be better to have a good percentage of the target financial goal invested and saved by the time I leave my job as an OT, and to work part time going forward doing something I truly enjoy, like a seasonal job in tourism or working at the library.
Looking at my aspirations, I continued to dwell on the best way to pay off the student loans. I had 87k in federal loans and about 16k remaining in private loans in November of 2019.
I had just applied for an Indian Health Service loan repayment plan a few months prior, and was accepted in March 2020. This program allows for eligible healthcare providers working in remote areas at an Indian Health Service facility to receive loan repayment for a 2 year minimum commitment. After the initial 2 years is fulfilled, the recipient can choose to extend on an annual basis if desired.
Signing on the dotted line, my contract goes through March 2022 and I will receive a total of $36k post-tax to put towards my loans. I chose to put my first installment of $18k toward federal loans, as the interest rates were much higher.
That leaves 67k remaining to pay off as of November 2019. My goal? To pay it off by July 2021. That is only 4-5 months away from right now (February 2021). I therefore would not need to renew my IHS contract.
I’m very fortunate in that I have had a stable paying OT job during COVID and have not had any decreased income. Because of the consistent income, coupled with my newfound appreciation for personal finance and the FIRE movement, I’ve been heavily chipping away at my loans.
My monthly budgeting looks like this, given 100% of my income, post-tax:
60% toward student loans
20% toward 403b
20% for living expenses with contributions to Roth IRA/ Vanguard taxable account as able
Looking at those numbers, I am eliminating 80% of my income right off the bat going toward paying off debt and saving for retirement. And once my loans are paid off, I will be able to shift those numbers so that the majority of my income is going to my 403b as well as personal taxable accounts.
I have many systems in play right now that enable me to do what I’m doing. 1) working at an IHS facility that has a loan repayment program, 2) earning a higher income in Alaska due to higher cost of living as compared to the lower 48, 3) an employer offering a pension plan and 4) the serious desire on my own end to not have to work a 40 hour work week for 40+ years.
I am very grateful all these things have come together to work in my favor. But I also give myself credit in knowing that I pay off THAT much in loans every month. Seeing $4k+ disappear every month is not a comforting feeling; however, I am so close to the end that the weight on my shoulders is slowly floating away.
As I complete this blog post today, I only have $8k left to pay of my own money toward my federal loan, and my second IHS installment will arrive in a few months with an additional $18k.
The end is SO CLOSE!
For those of you who have student loans from undergrad and/or graduate school, what methods have you used to tackle your debt? I’d love to hear from you.