A Harvard business school grad paid off $90,000 in student loans in just 7 months. Awesome, or crazy?
Yes that is awesome, and yes, that is crazy.
Do the math and you’ll quickly see that his average monthly payment was just shy of $13,000. He was able to do it because he was budget conscious – crazy budget conscious.
There’s nothing negative about this – he had a goal of paying his loan off in 10 months, he put his plan into action, and he achieved his goal 3 months early.
He also drained his 401k, and cut so many corners that I have to wonder how feasible this is for the average borrower – I’ll get to that. He went so far as to bring his own liquor in a flask to bars (illegal in some states).
Is this realistic for most people?
The Reality Of The Numbers
Now, lets come back to reality. This guy brings in $74k after taxes. Most of my clients are lucky to gross that. He has two roommates. Many of my clients have roommates, but I call them children. He also had a 401k, that he drained!
Granted interest rates aren’t that great, but until he returns every penny back to his 401k, he hasn’t broken even.
The Role Of The Student Loan Lawyer In Paying The Debt
The real goal of a student loan lawyer is to make sure people know ALL of their options so they can decide what is best for them. Most just want to survive without their student loans controlling how they live.
Though paying off the student loans so quickly did save a chunk of change in interest, the borrower in the story could have saved over $12,000 a month if he were on the income based payment plan.
You see – interest is the time value of money. Question is, will he have made back that $40k that he saved by spending $13,000 for seven months? Will he recoup his full value of 401k by avoiding the $750 student loan bill he would have had if he hadn’t paid off his loan quickly?
The Reality Of Paying Your Student Loan Debt
Anyone who can afford a $13,000 a month payment will never be a client – they can afford their loan and then some. Most of my clients are lucky if they can afford $1,000 or even $500 a month for their student loan bill.
Some might say my clients need to learn to be more frugal. Truth be told, they tend to be quite frugal – many don’t even have credit card debt. What they need is truth about their options – options to get out of default, and options to stay out of default.
Would you ever advise a client to BYOB to a bar so they could pay their mortgage off in under two years? Probably not. So why would you advise that same client to rush to pay their student loan. Surviving a student loan is just like surviving a mortgage. Both are investments for the future. Get affordable payments and the client can benefit more greatly from their investment. Let’s get real, let’s get educated, and let’s start helping the average borrower who can’t get the truth from the student loan industry.
And if a guy walks into your office who can afford $13,000 a month for his student loans, ask him if he has money left over to buy you a drink.
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