How I Learned to Stop Obsessing About My Student Loans

God grant me the will to change what I can, and the wisdom to know the things I cannot. Is that how the prayer goes?

Late last year I knew that when it came to my finances, I was doing okay with the first part, but failing entirely on the second. It had been more than two years since I’d lived paycheck to paycheck, but I was still acting like it. Worse, I was obsessed with something I couldn’t change—at least not in a short-term way—my five-figure, mortgage-sized student loan debt.

When I finished grad school in 2010, I knew in theory that I would be paying my students loans until I was at least 30-something, if not 40-something. But the theoretical becomes very real when you know you’re never going back to school and this, as they say, is it.

I’m fortunate to have been employed since that graduation day, and in jobs that allow me to make my monthly payments with a decent cushion left over. But looking at the math made me crazy. What if I added $50 more a month? I typed in a lot of potential payments of my student loans, trying to get myself below a certain amount at milestones (30th birthday? This time next year?).

I imagined modest windfalls to see how I’d proportion it out, but be annoyed when I realized it wouldn’t make much of a dent. I confirmed it when I threw an entire tax rebate at the largest loan, and ended up saving, drumroll, $8 a month, on interest.

The obsession was good, for a while. My spreadsheets (oh I have multiple), tell me that I’m almost $5,000 ahead of where I should be from my original payment plan. And I’ve still been able to go on vacations and probably spend too much money at restaurants.

But if not prayers, economics should have taught me that at a certain point that the returns start to diminish.

I’d log in into my student loan account in the middle of the month, just to see where the total was. Never mind I’d already calculated how much I was paying each day in interest and had a calendar that told me where I’d be in 12 months, 24 months—hell 53 and half months. Why was I bothering looking at the balance?

But what was really scary was that I realized it was possible that my absent-minded obsession with paying off my student loans was likely losing me money. I calculated how I could get below a certain goal and ended up forgetting to pack a lunch. I spent more time looking for freelance ghost-writing I had no passion for instead of working to further my career, the very thing I’d spent my future money on.

I’m not a resolution-type person, but the new year brought a good excuse for a new mindset. I decided to stop checking and calculating—as cold-turkey as I could. Everything was set to be automatic, so I could spend my time better.

The Serenity prayer, it turns out, is a much-more compelling version than my half-remembered attempt. It’s the often-used mantra of many 12-step groups. God grant me the serenity to accept the things I cannot change; courage to change the things I can; and wisdom to know the difference.

It’s going better, but old habits, especially Internet history habits, die hard. When I sat down to write this, it was because I woke up from the same over-calculating auto-pilot that had wasted so much of my 2012. There I was, looking at the largest loan’s balance in the middle of the month. I closed the window, shut the computer and slowly, slowly walked away.

 

Taylor Kate Brown is a professional American. She tweets here. Photo: annrkiszt

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15 Comments / Post A Comment

Blondsak (#2,299)

Thank you so much for sharing this! I am bookmarking it for 9 months from now, when my grad school loans start coming due. I’ve never had sizable debt before this and it’s going to be a hard lesson for me to not obsess over the timetable.

ghechr (#596)

My best tool for paying my student loans was an excel (or Google Doc equivalent of excel) spreadsheet that had my balance, calculated interest, and expected payment for each month. Whenever I had extra money- even something small like $20- I’d stick it toward a loan payment. It was motivating to see how even small over payment added up over time because the entire balance would change for the remaining years. Highly recommend!

this article is pretty much me, except my loans are like, tiny, especially considering the education and career they’ve gotten me. They’re car loan-sized, basically, and less than half my yearly salary. Not worth obsessing over! And yet I hate having debt. Haaaaaate it. I think I once I pay off the second of my two smallish loans from undergrad and only have the one monthly payment to worry about it, I will feel better. I hope? I already used my year-end bonus to pay off the first of said undergrad loans and it was awesome.

Marissa (#467)

@Lorelei@twitter I am in this same exact boat. Not worth freaking out over but even “good debt” is sooooo annoying. I can’t wait to pay it off.

Laurabean (#3,040)

This is me, except my folder of spreadsheets also includes a list of all my quarter mile run times. I obsess over anything that can be charted, basically.

Please tell me that your Excel spreadsheets make use of the NPV() function.

jason (#1,335)

@stuffisthings Go on…

@jason OK. So let’s say that paying an extra $1,000 today will save you $8 a month for the next 15 years. That’s a total savings of $1,440 so it seems like a no-brainer, if you have the $1,000 to spend.

That’s $8 a month next month, and $8 the month after that, and $8 in July of 2027. But $8 in July of 2027 will not buy nearly the same amount of stuff as $8 next month will. Right now $8 can get you a whole day’s allowance of saturated fat at McDonalds; in 2027 it probably won’t even buy you a small coffee. There are also opportunity costs. Maybe you could use that $1,000 to buy a bunch of new clothes which you will get to enjoy wearing for years to come. Maybe that’s a year of weekly lunches that make your crappy job more enjoyable, and maybe that’s more valuable to you now than being able to buy one more small McDonald’s coffee in July of 2027.

To quantify this, you have to discount those future payments: based on interest rates, inflation, and the value of having more money today vs. in 5 or 10 or 15 years. For instance, maybe you can invest that $1,000 in Apple stock, or use it to buy a laptop that will launch your blogging career. That could be much more valuable than an extra $8 month.

The way economists and finance people do this is with Net Present Value (NPV() in Excel), which is the value in today-dollars of a discounted stream of income (or cost of a stream of expenses) in the future. If you’re a business taking out a loan to invest in a project, and you can predict roughly what income the project will produce, you will want that to come out to a positive NPV. Otherwise it’s not a good investment.

You can use the same technique, but in reverse, to make decisions about student loans.

For example, if I look at my student loan balance on Sallie Mae’s website, it says I owe about $45,000. That’s what it would cost me today to pay off my loan; obviously, with interest, I’ll be paying a lot more. My payments total about $3,144 a year — Excel’s NPV function can only take 29 values, so I can’t do it monthly — meaning I would need to pay more than $90,000 to pay off the loan over 30 years! (I’m ignoring the fact I’m on IBR so really I’ll only be paying for 12 more years.) Looking only at those numbers it would seem to make perfect sense to pay off the whole loan now for $45,000, rather than over time for $90,000.

But at an 8% discount rate, the cost of that loan in net present value terms is only $35,082, because the money I’ll be paying with in the future is worth less than the money I’m paying with today. So if I got a $45,000 windfall tomorrow, it would still make more financial sense to continue paying off the loan over time than to pay it all off today.

KittyConner (#3,108)

I must confess I don’t quite understand this frenetic need to pay back student loan debt. It must be generational? Related to the financial crisis? Interest rates? The psychology of it is so interesting and (anecdotally to me anyway) widespread.

From my perspective, most of my cohort(graduated early-mid 2000′s)see student loans as a necessary evil much like (exactly like!) a mortgage. They suck, sure, but are just one of those things you’re going to pay for a couple of decades. Certainly not something to lose sleep over. A sunk cost of education. BUT! (Probably related) The interest rate on my consolidated loan is like 2.75%. It’ll get paid off when it gets paid off. It’s just a chunk of relatively good debt that certainly hasn’t hindered anything I’ve needed credit for so far (mortgage, car, etc).

For those who graduated late 2000′s and on (my brother is just like this author), it seems like student loan debt is a millstone they must free themselves from as quickly as possible for real life can’t/won’t start until the debt is gone. It’s become the financial equivalent of a very real evil.

I know that tuition is more expensive and interest rates have risen and jobs are painfully scarce. And I’m so sympathetic to the idea that all of those things have added up to a scary, horrible world for recent college grads and that really sucks and I wish SO HARD that it wasn’t that way, but I’m still (amazed? interested? saddened? ???)at the sea change in attitude toward student loans.

@Ash@Work “From my perspective, most of my cohort(graduated early-mid 2000′s)see student loans as a necessary evil much like (exactly like!) a mortgage.” I’ve always viewed my student loan the exact same way. I graduated in 2004 and literally never thought about my loan at all until I started reading thebillfold. The monthly payment automatically comes out of my bank account just like my rent cheques do. I pay rent so I have somewhere to live, I have my student loans so I can work at a job I like and am trained to do…

I think it is somewhat generational in that a lot of the student loan discussion on here and elsewhere is being written by twenty-somethings who are just graduating and therefore their loans are fresh on their minds. After a few years of automatic withdrawals they probably won’t be obsessing over it as much.

jason (#1,335)

@Ash@Work I don’t think it’s so much a difference in perception about debt or of some generational change in the way we think about money, but a change in the numbers themselves. When you have 6-digit loans at interest rates of 6.8% and above, it feels like you will never have any financial life until they are gone (and it’s mostly true).

I have spreadsheets for my loans, too. Once you realize how much you have to pay just to keep up with interest, it’s hard not to take it to the next step, and calculate how much money you can save over the life of the loan if you just add another $50 or $100 to your monthly payment (in my case, literally thousands of dollars and years worth of payments). I think that as time goes on they will become more of a “fact of life,” but when it is such a huge part of your monthly finances they’re hard to ignore.

WaityKatie (#1,696)

@jason I think the realization of the horribleness of student loans usually comes 1. when you’ve already been paying on them for a decade or more, and yet the balance has not gone down (or has even gone up) and 2. when you “look into it further,” to find that in fact you have just been throwing thousands and thousands of dollars at INTEREST ALONE and that, for example, you can pay 700 dollars a month and NEVER TOUCH THE PRINCIPLE. That is when the rage and despair sets in. Yep, 6 percent interest rate on a government loan, here.

dudeascending (#1,921)

@Ash@Work A 2.75% rate is killer under any circumstances. When I went back to grad school a few years ago, rates were around 6.8%. Over a ten-year loan term, that = serious cash money.

Also, I for one really, really, reaallllllllly lucked out in terms of the job market. I graduated in 2005 and even as a flailing, directionless Philosophy major, never had trouble finding a job that paid enough until I got my shit together enough to strike out on a “career path.” I seriously cannot imagine what it would have been like to graduate in 2010. With student loan debt. At 6.8%. Or more.

MameDC (#3,138)

My student loans generate over $1700 per month in interest. IN INTEREST!!!! Part of that is a volume-of-principal issue, and part of it is an interest rate issue (7.25%). If you’re lucky some of that is tax deductible. If you’re not, you have spreadsheets up the hoo-ha helping you figure out how to get that crap out of your life as quickly as possible.

margaretcatwood (#2,236)

@MameDC i’m right there with you. my loans from law school + a tiny bit of undergrad are right at the $230k mark and it’s like, where do i even begin to pay that off? i’d rather just hide under a rock until it goes away. 7.25%… shame shame, our government.

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