Student Debt Frustration

I Owe, I Owe, It’s off to work I go!

If you have racked up college debt, you are no different than 40 million other Americans. To find a good paying job, you need a college degree. But, once you’ve Student Debt Frustrationattained the degree, you have to figure out how to pay back all that money in a reasonable time frame and still keep up with today’s expenses. Managing college debt isn’t an easy task if you aren’t living with parents. Having to pay normal living expenses plus a student loan payment can make you live paycheck to paycheck or even fall short.

I often get asked what is most important between paying off student debt, saving for retirement and saving for a down payment on a house. The truth is, all are important and it all depends on many variables. Many wonder if they should focus only on tackling the student debt and forget about a 401k or house for now. Professionals all have differing opinions on which to tackle first or how to tackle all three at once.

Paying off college debt, investing in a 401k, -and- buying a house.

Let’s go through a scenario for an “average” person with a bachelor’s degree starting life out single. We’ll call this average person, Joe. Assume 21 year old Joe makes $52,000 per year starting salary and his company gives him a 4% annual raise. Joe puts 10% into his 401k and his company matches 3%. He pays on his college debt of $30,000 on a 10 year plan and he takes out a mortgage for $100k. Let’s see where Joe could be ten years after getting his bachelor’s degree:


Age Annual Salary 10% Invest 3% Employer Match Yearly
at 7%
Running Balance
21 $52,000.00 $5,200.00 $1,560.00 $6,760.00
22 $54,080.00 $5,408.00 $1,622.40 $473.20 $14,263.60
23 $56,243.20 $5,624.32 $1,687.30 $998.45 $22,573.67
24 $58,492.93 $5,849.29 $1,754.79 $1,580.16 $31,757.91
25 $60,832.65 $6,083.26 $1,824.98 $2,223.05 $41,889.20
26 $63,265.95 $6,326.60 $1,897.98 $2,932.24 $53,046.02
27 $65,796.59 $6,579.66 $1,973.90 $3,713.22 $65,312.80
28 $68,428.45 $6,842.85 $2,052.85 $4,571.90 $78,780.39
29 $71,165.59 $7,116.56 $2,134.97 $5,514.63 $93,546.55
30 $74,012.21 $7,401.22 $2,220.37 $6,548.26 $109,716.39
31 $76,972.70 $7,697.27 $2,309.18 $7,680.15 $127,402.99

Student Loans
$30,000 @ 5.25% interest for 10 years (120 payments) = $321.96 Monthly

Monthly Budget

Income: $4,333.00
Taxes -$780.00
401k Contribution -$433.00
Medical Insurance -$116.00
House Payment -$746.00
Groceries/Toiletries/Cleaning Supplies -$400.00
Utilities -$350.00
Car Payment -$280.00
Insurance -$185.00
Student Loans -$321.96
Vehicle Gas -$200.00
Other Expenses/Activities $521.04

Although Joe will pay $8,634 in interest on his student loans over the first ten years, had he not invested in his 401k plan, he would be behind the ball in saving with only the compounding interest. Look at the 401k table and note the amount of money Joe is saving each year just in the accumulated interest, not to mention the free employer matched money.

But I’m not Joe

I understand we can’t each fit into Joe’s box. There are many variables not being considered as each person is so different. If we were talking about a couple instead of a single person, this could drastically change the budget as well, especially if both people have student debt. If there are children to consider, this could drastically change the budget.

When creating a balanced budget from the beginning, it is easy to manage contributing to everything at once. The hard part is when someone doesn’t create a budget and has a more expensive car payment or house payment than they can really afford. When this happens, it makes it impossible to contribute to everything.

Let’s Get Real About This Debt:

Step 1: Figure out how much your student debt payments will be over a ten year period of time. These are typically low interest.Rent or Own Calculator

Step 2: Call around and figure out if it is going to be cheaper to own than to rent housing. Here’s a handy calculator to help determine whether to rent or to buy!

Step 3: Check with your employer to see how much they are going to match on your 401k contributions. This is free money, plus the compounding interest accumulates.

Step 4: Look at the big picture to see if you can survive after making all three of these payments monthly. Remember: If you don’t put yourself on a budget, the money will disappear.

I challenge you to play with numbers to see where you are in your monthly budget prior to committing to any of the three. Use a spreadsheet with simple calculations so you can easily change the numbers and see how your results line up. Examining your options gives you the control you need to get you where you want to be.

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