@mom2collegekids I do not understand all of this above. Could you break this down please? Thank you.
That loan payment is about what a car payment is. The problem becomes when you have that car payment AND the loan payment
My youngest has had two unexpected expenses that had to go on the credit card in his first months solo. An older child just injured self and is facing several months of recuperation and unpaid medical leave. Right at a crucial time, I might add. Life has these unexpected turns and that $200 a month can become a real burden.
But $200 a month is nothing compared to what those kids who took out multiple loan, co-signed loans, parent loans they swore to the parents they would pay off because the parents cannot. Thats where the real loan burden is. Also, those who delay repayment as the interest marches upwardly. Those who take on additional grad school loans even as the undergrad loans which are a manageable $200 a month are increasing astronomically
I think the bigger issue is that some students think that because they make $65K/year as a year, that they will be taking home 65k/year. This will probably be almost half as others stated (approx 35k) after taxes, 401k/403b/mandatory contributions, insurance etc. When you get your after tax $$ you must pay rent, car loans, student loans, phones, etc and you see that your money is not going far.
$65k per year gross yields about $47k-$52k after income and payroll taxes for a single person with no dependents or itemized deductions, depending on state and local income and payroll taxes. See https://smartasset.com/taxes/income-taxes .
Obviously, other payroll deductions like for employer subsidized insurance, 401k/403b contributions, etc. depend on the employer and the employee’s choices where applicable. But do most entry level employees really have $12k-$17k of such additional payroll deductions to get their take home down to $35k if they start with $65k gross?
Getting a safe place to live in NYC and other cities when you don’t know the lay of the land is expensive that first year. In areas like SV and, yes, NYC again, getting an apartment is very expensive. Huge difference in the upfront costs in getting a place in Manhattan and in Dallas, for instance. Also it kids who are relocating, a lot of upfribtvexorbses. Can’t just borrow from home when it’s miles away.
Another big problem is the expectation of higher living these days. When I got my first jobs out of college, there was no step up in my standard of living immediately. I got a job in the same City as my college. I thought having to upgrade my wardrobe and getting a bus pass were big new expenses. It took s while before I stepped into a new lifestyle. I was so used to being a poor student all of those years that the habits continued.
A lot of kids these days are living pretty high on parents’ supplements at college and when those dollars disappear , it can be a nasty jolt. Yeah, root canals are expensive and your dental insurance barely pays for it. That sprained ankle with xrays, and ortho visit goes into the deductible. Happy Hour and going out every day for lunch, Starbucks coffee breaks can add up fast. My sons report that at their offices, no one packs lunch. In my day we all did other than the top dogs. I hear min wage workers discussing what carry out they are group ordering that day when I took a job early this year and, yes, I was the outlier packing food most of the time. The office manager called in a pizza and trimmings every other day, and there was a coffee and pizza fund to throw in your money.
$60k a year is a danger good salary for a new grad, and once the initial relocation bumps are done, it’s time for anyone who is having trouble living on that to focusing on budgeting and close examination of life’s style. Yes, that’s when the true differences between the big trust fund kid, or kid still heavily supported by parents , and the one who has to make it in his own come out. Despite that NYT piece on financial aid kids having it that difficult at college, I think that great divide happens after graduation.
On the flip side I have a good friend whose daughter graduated St. Olaf last year. She makes about $35,000/year. She lives in Minnesota. She has an apartment which is something like $800. She has a used car. She does have most of her education paid for which is a huge plus. She puts away money into two savings accounts monthly. She has a matching 401k. She doesn’t live high on the hog. Her parents give her no money at all. They are ecstatic! ?
She’s happy.
So it can be done.
@Tenzimom, Every month you’re charged interest on the principal balance of your loan. If you pay more than the minimum payment the principal is reduced more than if you pay the minimum. A lowered balance means less interest.
A real life example: when my eldest was a sophomore my spouse was injured and lost 6 months of work. We took the $6500 student loan to not tie up our cash. The loan payments don’t start until next Dec, but I started paying it right away. I noticed that if I paid $100/month $92 was applied to the principal and $7 to interest. If I pay $130 or more it’s all applied to the principal.
If you have more than one federal student loan you can request that anything you pay over the minimum be applied to the loan with the highest interest rate. The subsidized and unsubsidized rates can be different, and they may change from one year to the next. The interest rate for the unsubsidized was 4.29% fixed. The subsidized part is 3.76% fixed. So pay attention to the interest rates too.
This^. It’s called living within your means.
IMO, it’s more difficult for heavy duty financial aid kids AFTER college when balancing a budget, trying to maintain a certain standard of living, seeing truly great disparity between one’s choices and those with parental support, etc etc .
It’s always tougher without help but ultimately the ability to manage what income and bills one gets is more important than the income unless there is a tremendous source there. I know broke kids who are making 6 figures AND getting parental support. It’s never enough money.
Then , I remember the days when a car repair, or dental work, new glasses were ever so dreaded. It took a while to accumulate enough of savings to deal with things that happen that cost a lot.
For kids whose families are going after them for money, as in that NYT story, well… some sort of financial decision had to be made in terms of what can be budgeted. I always had my parents in mind when I put short term savings away
Because any visiting them, or them visiting me, was going to have to come from my account, and I did want to send a little extra occasionally. If they had had truly desperate need, I would not have been able to make it work financially, after college, let alone during
If they are not, perhaps they should think about financing their 401k/403b plans at the beginning of their careers as many young people in the work place will most likely have to fund their own retirement.
A person who makes 65k, who is maxing at 20% pre-tax is getting taxed on 52K. If they are paying 28% in payroll taxes, they will net approx. 37k not including health insurance , perhaps before tax commuter benefits, etc. , while having 13k in savings.
This same person who "pays them self first can have a nice nest egg built up in years they are also paying off the loan (approaching 100K after interest compounding and increased amounts after raises). Do it before they miss the money.
I know this is the first piece of advice I gave my D, who started maxing out since she starting working and has a good amount of money saved. She is still saving working in NYC, where she rents an apartment without roommates. She will one day have to plan funding to send her future children to college.
“My payment is $217 and now it says I only owe $184. Why?” I had to explain about interest accruing from payment to payment, and since she made her last payment at the end of Aug, if she pays now she’s only paying 14 days of interest."
This was the most confusing thing about student loans. DH had loans for grad school. We consolidated them at some point. It was a simple interest loan (compounds daily, not monthly). If you paid a day early, more went toward principal, if you paid a day late, more went to interest. If you paid extra, you had to ask them specifically to apply it to principal and you really lost out if you sent an extra payment in the middle of the month. It would all go to interest. They would also adjust the payment (only down, never up) if you paid extra so your next payment was smaller, or not due at all for another month or two. Once, we were paid ahead by quite a bit (by ignoring their persistent attempts to lower the payments), and we got a letter saying our payment had been lowered to keep us on track to pay off the loan on time rather than early! Not what we were trying to accomplish. We felt like the loan servicer was constantly working against us. None of this has ever happened with our car loans or mortgages. This is the stuff to educate kids about before they take student loans.
And yes, a realistic idea of living expenses, starting salaries, and the challenges associated with paying loans would go a long way toward reducing the problem.
When you make ANY payment on an interest accruing loan (there are other types but they are more rare and student loans are simple interest), the payments are applied first to charges (like a late charge) and then to accrued interest, then to principal. It’s not possible for an extra payment to ALL go to interest if you are current on the loan. It can only go to the interest that has accrued since the last payment, and a much bigger portion will go to principal.
When you have any type of loan (car,mortgage, etc) you’ll receive a amortization schedule. You have the right to follow that and as long as you pay within the grace period, you’ll be fine. Student loans are the same. My daughter can pay the scheduled $217 per month and it will work out in 10 years, but if she pays 30 days, then 15, then 45, then 30, her charted amortization will look like a roller coaster.
She read me a statement on her payment that said that if she paid more than scheduled, the ‘extra’ would go to the principal of the loan with the highest interest rate - which is exactly what we want it to do. Where kids (and adults) get screwed up is if they pay double in one month and they think they can skip the next payment. No, that amount has already been applied to principal and not ‘saved’ to pay the next payment. If the next payment is more than 30 days later, a late charge may have been assessed and more interest than the amount of the payment may have accrued, so no principal is reduced. Pay every 30 days and if you pay extra, realize you haven’t ‘paid ahead.’
The interest rate for loans is set on July 1 of each school year. The rate is different for loans taken in different years. I’ve not seen a different rate for subbed and unsubbed loans taken in the same year.
A little off-topic but goes with @twoinanddone has been posting…
If someone is in grad school and their loans are in deferment (or whatever the correct terminology is), how can they keep making payments automatically to prevent interest from accruing? It seems like the “auto pay” feature doesn’t work when the student is in grad school because they automatically put the whole thing in deferment.
Student loans are always simple interest. The only time the interest compounds is when it is changed from ‘deferred’ status to ‘repayment’ status.
My daughter’s loans just converted, one in Aug, one with the first payment due Nov. 15. In both cases, she was given the amount of interest that had accrued and given the chance to pay it off before it compounded.
The student can always make the interest only payments along the way. If you need to know how much that is, you can find it online, but you are really no worse off paying it all at once right before it compounds (if you have the discipline to save that interest while in deferment).
Few young adults can go 10 years post college without a car payment, so yes, there’s going to be a few/several years of having a car payment and a loan payment.
Well, many do go without a car but it’s likely because they are living in a city with a higher cost of living and public transportation costs.
^^This!!!
44% pay no fed taxes. So a student from such a household is going to think, “well my whole family lives on $50k per year, so I will have plenty of money to put towards loans when I’m earning $50k for just myself. Surprise! A single person earning that much will pay a good bit in taxes.
Ok, so the same idea applies. They have a pricy expense that is eating into their take home pay along with that student loan.
That said, I would imagine that the majority of newish grads are driving to work.
If her loan is a federal loan then she should be able to set up auto pay and not have to remember about it.
Lol…I know a few Communications, Psych, Socio, Anthropology and Child Development who aren’t earning $35k yet either. I know it’s not PC to mention that the ROI of some majors can be very low, but it’s true. Sure, there are jobs that just want the person to have a degree, any degree, and that’s super. And there are jobs that don’t require a 4 year degree at all, but if you have one (in any major), you’re more likely to get promoted.
A young friend of ours has a Criminal Justice degree and went to work at a bank part-time while in college… Quickly moved from a teller position (part time while in college) to a loan officer (after graduation) to a bank manager. In his late 20s and is earning $65k per year with bonuses.
https://smartasset.com/taxes/income-taxes says the following for $50k income in Texas (no state income or payroll tax):
- Married couple with family of 4: $2,739 federal income tax, $3,825 FICA => **$43,436** after-tax take-home pay
- Single with no dependents: $4,370 federal income tax, $3,825 FICA => **$41,806** after-tax take-home pay
One thing that I have noticed in most threads on these forums is that people’s guesses of income and payroll taxes for hypothetical income situations are often far off the mark.
Some students (mine for example) have a good idea about what their income needs to cover (rent, food, transport, etc), and what those things cost in their home town, but not what the costs are where their future employment is. For instance, our S was pricing apartments in a SV locale and was floored at the monthly rent for a studio apartment. Floored as in finding out that the monthly rent for 800 sf apartment was more than the mortgage for our 3,900 sf home (with a diving pool, spa, and basketball court).
The tax estimation web site mentioned earlier is handy. Wish there was something similar to estimate total cost of living for a given area. There are some that compare what it will cost you to live in a new area based on where you currently live. But none just list what it will cost for a new grad to live in a new area.