A way to pay off the cockroaches of debt

Posted: July 22, 2014

I WAS TEACHING at my church recently about the dangers of debt, when a new college graduate asked me the same question many ask these days.

"What can I do about my student loans?" she asked.

"How much do you have?" I asked.

I flinched when she said about $25,000.

It's still early for spring graduates to feel the weight of their debt. Many with federal Stafford loans won't have to start repayments until after their six-month grace period, which borrowers are given so they don't have to make loan payments after graduating, leaving school or dropping below halftime status. Those with private loans also may have grace periods.

I think of student loans as the cockroaches of debt. The loans are hard to get rid of, because for so long people were told this was good and necessary debt and so it wasn't a bad thing to have it hang around for decades.

When people ask me what they should do about their student loans, I ask: What are you willing to do to get rid of them as fast as you can?

And here's my suggestion: Live for as long as you can with your parents, relatives or anyone who will allow you to stay rent-free or charge you a super-low rent.

If you are looking for a strategy to pay off your student loans, look at your housing expense. It's usually by far the biggest budget item, taking up 30 to 40 percent of many people's budgets.

During the talk at my church, I asked another young woman with student loans who was living in an apartment if she could move back home. She said she lived near her father.

Great. Give up the apartment and move in with him, I told her.

She looked like I had slapped her. Many in the congregation murmured their disapproval of my suggestion.

Really, why is this so out of the question?

We are so quick to push young adults out on their own on the principle of teaching them personal responsibility. And many want their independence. But when young adults are burdened with student loans, giving them an opportunity to live at home isn't enabling bad behavior. It's giving them a chance to start their independence debt-free. However, make sure, in exchange for no or low rent, they are living frugally so they can devote as much of their income as possible to getting rid of the loans.

Do it my way, and when they finally launch, they won't have to relaunch. They won't have to come back home because they couldn't handle all the expense of living on their own plus the heavy burden of student loans.

I met a young physician with $350,000 in debt who was living in the home of two friends and paying about $650 in rent. She was wondering if she should move because the couple was about to have a baby.

"Did they ask you to move?" I asked.

They hadn't.

If she has to move, she should again find a low-rent option so that she could devote almost all of her income - minus money she needs for necessities - to her loans. Even if she can't stand to live this way for more than a few years, she still can make a significant dent in her debt.

Bankrate.com has a calculator that lets you choose a percentage of your salary as payment on your student loans. On the site, search for "How long will it take to pay off my student loan?" When you input your salary information, be sure to use your net pay rather than your gross salary.

So let's take the student owing $25,000. If the interest rate on her loans averaged 6 percent and her net yearly income was $30,000, and living with her father rent-free enables her to devote 30 percent of her income to paying off her loans, she would be debt-free in three years and one month. Boost her payments to 40 percent of her take-home salary and she would be debt-free in a little more than two years.

If you don't live near relatives or friends willing to let you live rent-free, look for people renting a room in their house. If you have to get an apartment, get as many roommates as you can.

"I need my space," another debt-laden graduate said.

OK, then live with the debt.

Too harsh, you think?

I don't think so, especially when I see folks who had their space in their younger years and are now well into their 40s, 50s and even 60s, and still saddled with student-loan debt.

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