patrick.net

I return to a hoary old quote told to me, by a rich guy:

Poor people PAY interest
Rich people EARN interest

First focus for me out of college was eliminating debt. That said it all depends on the terms of the loans and what the tradeoffs are. You cannot bankrupt your way out of student loans so eliminating that obligation to me would come before all other debts which in worst case I could skate out of.

Heres my advice:

1. keep paying bare minimum on all loans to keep credit good

2. buy as many properties as you can with mortgages (put as little down as possible). crappy, run down SFR in older gentrified area where every other home is a remodeled McMansion and the original homes are crappy rentals is perfect.
2. You might get 8 homes easily before the FHA says 'no more loans'.
3. A year after buying them all extract max HELOC money on all 8 homes. you only need to average 22k per property which should easily be doable- the key is you need to put a fresh paint job and cheap landscaping in to get them the highest appraisal. You might pull 50k out average and end up very well off!
4. Pay off student loans with HELOC cash.
5. Sell homes since they probably will not cash flow as rentals anymore with all that HELOC cash pulled out.
6. If real estate goes down in price you short sell all the homes and/or declare BK.

So in 2 years you got paid off loans, and fat stacks of cash in the bank! Remember your intent is NOT to default on the mortgages -(thats illegal) your intent is to make money in real estate to pay off your student loans (totally legal).

I tell people this and it blows they mind. Only a chump pays off student loans with hard earned cash IMO.

Remember 'if real estate prices go down' its not your fault that those loans are all dischargeable in BK but Student loans are not. Lucky for you, you paid off all student loans and the feds will be happy.

PockyClipsNow,

This sounds just a tad bit fishy, but thanks for the advice! :)

xlr8 says

2 professionals and neither of our parents had money to put us through doctoral level degrees.

What are your professions if you don't mind me asking?

Clara says

Another reason why I think PHD is so overrated. From a totally financial point of view, you can't afford the degree. Why spend a lifetime paying for it... "Y U No smart enough to figure that out to begin with??!"

Most PhD's in the sciences are fully paid for by grants. That being said, despite all my friends in Chemistry & Chemical Engineering the past 2 years have graduated with Doctorates debt free, it wasn't worth it. No one is willing to hire them because they don't want to pay them a measly $70K and they are forced to accept entry level jobs paying below what my colleagues who went straight into industry out of undergrad at age 21 made 7 years ago.

RentingForHalfTheCost says

Funny how everyone thinks 180K is a huge amount to invest in someones education and the increase in life quality that comes with it, but look at a $1million dollar cottage in agreement. Good schools, short commute, safe neighborhood, etc. You are still buying a run down PIS people!

Who the f*** pays a million bucks for a cottage? That cottage better be constructed of pure gold...

My goodness, I'm in the wrong business. I should get into money lending.

PockyClipsNow says

So in 2 years you got paid off loans, and fat stacks of cash in the bank! Remember your intent is NOT to default on the mortgages -(thats illegal) your intent is to make money in real estate to pay off your student loans (totally legal).
I tell people this and it blows they mind. Only a chump pays off student loans with hard earned cash IMO.
Remember 'if real estate prices go down' its not your fault that those loans are all dischargeable in BK but Student loans are not. Lucky for you, you paid off all student loans and the feds will be happy.

This is too good but if you have the instestinal fortitude....moving to Europe might be a better option after a few years........

I say my plan is PLAN A. If it fails you can ALWAYS move to europe, it will still be there.

theoakman says

Clara says

Another reason why I think PHD is so overrated. From a totally financial point of view, you can't afford the degree. Why spend a lifetime paying for it... "Y U No smart enough to figure that out to begin with??!"

Most PhD's in the sciences are fully paid for by grants. That being said, despite all my friends in Chemistry & Chemical Engineering the past 2 years have graduated with Doctorates debt free, it wasn't worth it. No one is willing to hire them because they don't want to pay them a measly $70K and they are forced to accept entry level jobs paying below what my colleagues who went straight into industry out of undergrad at age 21 made 7 years ago.

Just curious - what did your friends make at 21 straight out of undergrad?

Student loans ARE dischargeable in a chap 7, so long as you roll them into CC and personal loans six+ months prior to the BK

theoakman says

Most PhD's in the sciences are fully paid for by grants. That being said, despite all my friends in Chemistry & Chemical Engineering the past 2 years have graduated with Doctorates debt free, it wasn't worth it. No one is willing to hire them because they don't want to pay them a measly $70K and they are forced to accept entry level jobs paying below what my colleagues who went straight into industry out of undergrad at age 21 made 7 years ago.

I have had coworkers who deliberately omitted the PhD from the resume, so that they could get hired.

I have had coworkers who deliberately omitted the PhD from the resume, so that they could get hired.

So much for the value of higher education! How do they explain the gap in employment?

John Bailo says

I think if I had that much student loan debt, and a good credit rating, I'd try and sign up for $200,000 in credit cards, then, all at once, use them to pay off the student loan (which you cannot default on) and then default on the credit cards.
Can you do that? If so, why don't more people do so?

How do you propose to use credit cards to pay off student loan debt? Don't you think the CC companies would twig to this if you start running up huge credit lines?

New renter says

So much for the value of higher education! How do they explain the gap in employment?

both of them joined the outfits that I worked at, after they were well into their careers. One of them was laid off before joining the outfit I worked at. The other one quit a job to join where I worked.

And sometimes, the value of being a grad student in the USA is not the degree. It's getting the feet on the ground in the USA to try to get an H-1, or marry into a green card, etc.

Pay off debt first. With a loan interest rate of 4.8%, every 1 dollar of debt paid off is equivalent to a stock investment return of 6.1% before taxes. Assuming you belong to the 28% tax bracket.

Was this a professional degree? Usually I thought PhD's got grants and worked under professor/advisors while obtaining that degree?

xlr8 says

I have about $180 thousand in student loans that I am very slowly paying off.

Make sure to look into any sort of loan forgiveness options.

1. Will there be any amendments to the laws governing government backed student loans in the next 20 years? If you think so, maybe it's wise to not pay it all off too soon.
2. Are there any programs that reduce/eliminate the debt depending on your choice of profession. A friend suggested that her student loans would be forgiven after 10 years because she works in a "public service" field. I don't know anything about this, but if it's true, it's worth knowing about.
3. Is there a time limit to how long you have to pay? I have heard rumblings of some "X% of your salary for Y years and you are done"...this may be wishful thinking, but if there is any truth to it, it may shape your decision.
4. If you expect interest rates to increase significantly in the future, the "cheap money" might be good to have. This may not be enough justification to pay the minimum, but it may lean me towards paying it off slower than I could (of course, saving the extra...not spending it on prime rib dinners)
5. I think it's a good idea to be putting something into your retirement even as you pay down the loan. Putting extra money into an IRA protects it to a degree and a Roth IRA allows you to withdraw contributions penalty free at any time (as I understand it). You need some sort of emergency fund anyway, so why not use a Roth IRA to house it until you need it...and if not, it's in (whereas later you can't "make up" for missed contributions.)

Clara says

Another reason why I think PHD is so overrated. From a totally financial point of view, you can't afford the degree. Why spend a lifetime paying for it... "Y U No smart enough to figure that out to begin with??!"

I got mine for cheap, but I totally agree with you. PhD is overrated. Just get your dang MD and move on. Intellectutalism, blah, blah, blah...

errc says

Student loans ARE dischargeable in a chap 7, so long as you roll them into CC and personal loans six+ months prior to the BK

Not exactly.

http://njlawnet.com/njlawreview/bankruptcy-faq.html

"For example, 11 U.S.C.A. §523(a)(8) allows a student loan to be discharged if it is (1) not "insured or guaranteed by a governmental unit," and not "made under any program funded in whole or in part by a governmental unit or nonprofit institution." A student loan may also be discharged if repaying it will "impose an undue hardship on debtor and the debtor's dependents." But the "undue hardship" exception is difficult to establish. "

Since the Obama administration has pretty much reigned in student loans to be under the federal government this pretty much means that you cannot file bankruptcy. You also have to remember that via the bankruptcy reforms of 2005 you have to plead in front of a judge.

http://money.cnn.com/2005/04/20/pf/bankruptcy_bill/

The courts determine if you qualify for chapter 7...not the person.

"A qualifying test: Currently, it's up to the court to determine if your case qualifies for Chapter 7 bankruptcy.

Under the new law, your income will be subject to a two-part means test. First, it will be subject to a formula that exempts certain expenses (rent, food, etc.) to determine whether you can afford to pay 25 percent of your "nonpriority unsecured debt" such as your credit card bills. Second, your income would be compared to your state's median income.

You won't be allowed to file for Chapter 7 if your income is above your state's median and you can afford to pay 25 percent of your unsecured debt, said California-based bankruptcy attorney Stephen Elias, who is coauthor of the book "How to File for Chapter 7 Bankruptcy." But, he said, you may be allowed to file for Chapter 13.

If your income is below the state's median but you can pay 25 percent of your unsecured debt, you may be able to file Chapter 7, but the court can still require you to file Chapter 13 instead if it believes that you would be abusing the system by filing for Chapter 7, Elias said"

So if you play it out and just refuse to work and claim to be poor fully knowing every correlation shows that higher education generally leads to lower unemployment...but then having to convince a judge this is true for TWO people...

It just isn't going to work.

College education should be obtained on the cheap if at all these days. A smarter option than going to an expensive university to get a degree of questionable applicability to the job market is to do trade school followed by an apprenticeship in a high paid blue cOllar field. There are about 600,000 less machinists in the US than there is work for, employers literally can't hire enough skilled labor to fit their needs.
I am one of these people who went this route. What led me this way was having to pay for an expensive education. I am now a crane mechanic and make nearly $150k/year. The best I could do with my science degree was maybe a third of that. I also have a pension and full benefits. Once I paid off my student loans I was just in time to watch the housing market zoom into the bubble.
Nothing was left to do but save and invest.
Often I think that my degree was a total waste of time and money. Just in opportunity costs I probably am down half a million dollars than if I'd just gone this blue collar route to begin with.
Also, in my profession there is zero percent unemployment. We have a devil of a hard time Finding even halfway qualified people to hire.
A full journeyman won't be between jobs for long.

But is there work for it? I'm not doubting the work in your region but much of construction has dramatically shifted from private to governmental work. If you cannot get a piece of that then it is harder to find. Let me ask you this though. If there are 600,000 machinist jobs needed to be filled why aren't the unions jumping up and down trying to get a piece of it?

I'm not one for expensive educational areas. Gradually employers have asked for more standards. Drug tests in the 80's, background checks in the 90's, now some want credit checks (legality is state by state).

Years ago during the height of the bubble I knew a fair number of people that were begging for more workers for construction and the trades business as a whole. Now many of them are stranded. Granted there are interesting things that are popping up when you have cheaper labor and material just sitting around. I wouldn't say that a job can fully be recession proof but some have little substitute. I know a guy that repairs elevators in AZ. Think of all the cities in the country..in the world and how many skyscrapers there are. They wouldn't build up unless they were confident in that the elevators worked, otherwise that's a long long walk going down. Then think of all the commercial buildings, retailers and governmental offices that also use them.

Good god kid that's a lot of debt to take on.

I heard Obama passed some program recently that lets your education related debt go away if you work for the government for a few years. Not sure of the details, but you should look into that.

And of course pay off your debt first. It's compound interest, the longer you pay it the more you will end up losing tons of money.

These jobs are mosty union, and if they aren't then it's usually easy to form a local. I'm a member of the machinists union (IAM). Union membership has never been lower nationwide since their advent. However this will change as high tech manufacturing comes back to the US. This should lead to a much stronger economy overall, as union workers secure higher wages which means more people with the means to "stimulate" the economy as our Dear Leader Obama keeps exhorting us all to do. As naive as his domestic policies have been, he begins to show promise with his new push to normalize corporate taxes and provide incentive for American manufacturing. This is the true way back from the brink. America works when Americans work.
Unions can't do the jobs without members though, so more trained machinists are needed before they can be hired. Google my info and read the articles yourself.
As for recession proof jobs, let's just say that my income in this profession has been uninterrupted by the worst recession in four generations. Many people were not so fortunate. I give to charities that help those down on their luck, but I'd prefer people to have jobs and self respect. Bringing back manufacturing will achieve this.

xlr8 - let me be the first on this thread to express my empathy. Educational debt is a debilitating albatross. I should know, I've got a huge amount too (mine is for law school and some undergrad, currently about $130K).

Six years out of law school I make about $105K/annum. The legal market being what it is, I am quite happy to have a job that pays decently. I know PLENTY of others with more debt, and lower salaries. Then again, I know others whose parents foot the entire bill for undergrad and law school, and some of these folks even landed coveted BIGLAW jobs at $160K starting. (And yet they still complain about money....)

For the first few years after law school, by necessity, I paid the minimum monthly amount on my loans. I have upped that amount in the past year, so more goes to principal and i xlr8 (sorry) total payoff. I've seen nothing in this thread to suggest any other way to go.

I'm assuming that your loans are private (non-federal)? Because the interest on fed loans should be about half of what you are paying. I've got both fed and private loans - the fed rate, after making consistent payments for soemthing like 5 years and participating in direct debit - is like 1.75%. And that rate is locked for the life of the loan. So i make minimum payments on that, and will until it is enitrely paid off (unless I find a pot of gold, etc).

My private loans are at 2.75%, but that rate will rise when interest rates rise. Like others have said, you should look into consolidating or switching the loan servicer to get a better rate.

As I am sure you know, unless you make less than approx $72K (or is it $77K?), your student loan interest is NOT deductible. Plus, as others have noted, the loans are non-dischargeable in BK. Seems to me paying them off (or at least significantly DOWN) is your most prudent play.

I like the advice of clambo best. Do both - make more than the minimum payments to the extent possible, AND save for retirement. It is quite true that by the time you pay that $180K off entirely, you won't have too many earning years left. I know bc i am in that same position.

It is not apretty situation however you look at it - but honestly, I'm proof that you can still have a decent std of living while paying off those loans, if you are frugal in all areas of your life and you manage to earn even a decent salary (I'd say given the circs that would have to be $100K).

Just don't court another albatross in the way of a huge mortgage. I rent cheap and use the difference to pay those $#%&*!!! loans.

all best

wthrfrk80 says

RentingForHalfTheCost says

Funny how everyone thinks 180K is a huge amount to invest in someones education and the increase in life quality that comes with it, but look at a $1million dollar cottage in agreement. Good schools, short commute, safe neighborhood, etc. You are still buying a run down PIS people!

Who the f*** pays a million bucks for a cottage? That cottage better be constructed of pure gold...

My goodness, I'm in the wrong business. I should get into money lending.

Here is a nice cottage for 1.1m. 2/2 1288sqft on a 5000sqft lot. I built a bigger cottage with my Dad when I was 15 yrs old. It took us 2 months of hard work. Just the two of us and some sporadic help from friends a few times. I think the full cost was in the 30k range (probably 60k in today's dollars). 1.1m! Crazy nuts. (I mean sellers and buyers).

http://www.movoto.com/real-estate/homes-for-sale/CA/Los-Altos/999-Loraine-Ave-100_81149168.htm

I'll buy your $60k cottage. How much does it cost to buy the land on which it sits?

bg says

I got mine for cheap, but I totally agree with you. PhD is overrated. Just get your dang MD and move on. Intellectutalism, blah, blah, blah...

Surprised to see similar comments, but maybe mid-day on the internet is not representative of the PhD-having community. My friends, and wife, with PhDs seem to be doing quite well with income associated with their profession and study. So there's another adecdote in a positive light for getting higher degrees of learning.

Of course, understanding is also very valuable when considering quality of life, so getting more is its own value. But that's the idea the Greeks brought us way back when, right? So that's old news. Don't wait until you're old to think it's not a house that makes life happy.

wthrfrk80 says

I'll buy your $60k cottage. How much does it cost to buy the land on which it sits?

It is a family cottage and was built not for profit. Even if you gave your first born it wouldn't be enough. Unless your kid was education in the incredible Cupertino schools. That changes everything. ;)

There's plenty of cottages in the cape area that might be around that price. A friend of mines parents bought one and found out the hard way it really isn't an area to live in year round (basement only accessible though bulkhead doors outside), heating elements were just holes in the floor covered by registers etc.

Cottages might be fine for a weekend but it just isn't the right thing to live in year round.FunTime says

Surprised to see similar comments, but maybe mid-day on the internet is not representative of the PhD-having community. My friends, and wife, with PhDs seem to be doing quite well with income associated with their profession and study. So there's another adecdote in a positive light for getting higher degrees of learning

I'd say this largely depends on the field. In hard science sure...if not then it can be iffy. Outside of academia and some trade publications that few would read there isn't that much out for jobs in non hard science ph.d degrees. Look around at who is quoted and working where. Is there actually private demand for some jobs at that level? Just because someone likes a subject does not automatically mean they want to teach it.Tenure can be nice don't get me wrong but it is quite controversial to say the very least. I know of some institutions that have different contracts for non tenured..one is one year and the other is three. At the one at three some have been there for twenty years and not earned tenure (they aren't on the track but why go on it if 25% don't make it?)

mdovell says

I'd say this largely depends on the field. In hard science sure...if not then it can be iffy.

Yeah, I agree. I was primarily responding to the general comments about PhDs and pointing out, like you, that it's helpful to recognize general statements. theoakman also posted about Chemistry and Chemical Engineering, which is what my wife and her friends studied, also Materials Sciences and Engineering. Many of them were able to get cool, high paying jobs immediately out of grad school.

my plan is best.
Run up private,credit card,home loan debt to get CASH to pay off student loans.
Declare BK.
Freedom!

Everytime i meet some poor hard working dope with 100k+ in student loans I think of all the bubble era flippers who pulled out hundreds of thousands in HELOC money from thier flips/houses and blew it on toys (and more real estate). THey all went BK are are walking free.

But somehow if you 'get a loan for school' you will get no freedom/debt forgiveness? this seems wrong. inheritenly unfair.

I could get a business loan for 200k to open a dildo factory, it will fail within a year due to cheap chinese dildos 'puttin me outta bidness' THEN I can declare BK and walk free. But these people cant? ????? WTF???

Anyway its thier own dumb fault, have to be brutal to get ahead in modern CCCP/US.