Tuesday, Oct 29, 2019 • 28min
Student Loan Debt Is Crushing Us
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Student loan debt has become a national crisis. Today, 44 million Americans owe a collective $1.5 trillion. (Yes, trillion.) Nearly two-thirds of that debt belongs to women, including today's guest, whose student loan debt — more than $250,000 — is about four times her annual salary.
Expert: Farnoosh Torabi.
Click here to schedule a visit with the National Foundation for Credit Counseling. And for more information on student loan debt forgiveness and the survey mentioned in this episode, click here.
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Talking about
Speakers
(2)
Samantha Barry
Farnoosh Torabi
Transcript
Verified
Break
Samantha Barry
00:14
She Makes Money Moves a production of
Glamour
and iHeart Radio
.Share
00:18
I figured once I got a job I'd be able to pay everything off and I really didn't think about how much I was taking out until I graduated.
Share
Samantha Barry
00:32
I'm
Samantha Barry
, the editor in chief of Glamour
and this is She Makes Money Moves.Share
00:40
Student Loan
debt in America
has become a national crisis and it's taken center stage among politicians in the run up to the 2020 presidential election.Share
00:52
Cancel
student loan
debt for 95% of the kids who have got it.Share
00:57
If we could bail out
Wall Street
, we damn well can cancel all student debt in this country.Share
01:05
Nationally, $1.5 trillion in outstanding
student loan
debt. I think last year, on average, graduating college seniors had $37,000 on their back, that they're going to be paying back. I think this year it's 40,000 bucks.Share
01:21
No student should have to fear the burden of what student debt right now brings.
Share
Samantha Barry
01:30
But it isn't just a political issue. It's a women's issue. That $1.5 trillion dollar debt you just heard about? Women own nearly 2/3 of it. As she struggled to pay back her own student loans.
Share
01:47
Today's guests tried to use credit cards to stay afloat. Today, she owes over a quarter of $1 million. She's making around $85,000 a year and trying to build back up her savings. At some point, she would like to start a family and own a home, but she's scared that she will never be able to afford either. This is her story.
Share
02:12
My name is Melanie McDonald, I am 28 years old and I live in
New York City
. I'm a physical therapist here and I've been practicing for about three years now. I am $285,000 in debt and $274,000 of that is student Lloan
debt.Share
02:31
I always was interested in having a career in science and I went to a city school in New York, and luckily my parents were able to cover those expenses for me. I decided I wanted to be a physical therapist and, you know, started looking into the options for PT school, and they're all pretty much expensive.
Share
Samantha Barry
02:53
To become a physical therapist, she'd need to earn her doctor of physical therapy degree through a graduate program that usually takes a little over three years to complete. While she was applying to school, Melanie worked full-time as an office manager for a physical therapy practice. Her parents were adamant about saving when she was growing up, but when she got a paycheck she was inclined to spend it.
Share
03:17
As soon as I started working and actually making real world money, I spent it a lot. I bought shoes, I bought clothes. I was thinking about moving in with my then longtime boyfriend. So we were looking at apartments, we finally moved in together. And, I think that's where my money went then.
Share
Samantha Barry
03:39
A few months later, Melanie was accepted into a program at
New York University
. She was offered a small scholarship, but she'd need loans to cover the rest.Share
03:49
I had to take out a significant amount of loans. I took out about $240,000 to cover my tuition, my books and my apartment, because physical therapy school is full time, so I wasn't able to work. I did side things here and there, but we weren't supposed to.
Share
04:11
I thought, I did personal training on the side, sometimes I tutored anatomy, but it was kind of an hour here, an hour there that I would make maybe 100 bucks or 200 bucks a week that would probably buy my coffees in the morning.
Share
Samantha Barry
04:26
Melanie qualified for a grad plus loan, a type of federal loan that's available to students in graduate or professional schools. It covered her tuition and gave her the option of requesting more money to cover living expenses.
Share
04:39
Any time a financial aid offered more money, I took the extra money. I didn't really think about not taking it or giving it back or paying off the loans early. I figured once I got a job I'd be able to pay everything off. Physical therapists are supposed to do pretty well. So I really didn't think about how much I was taking out until I graduated.
Share
Samantha Barry
05:00
Three years later, Melanie graduated and started working right away. She was eager to tackle her
student loan
debt, and while her payback plan would have allowed her to wait to start making payments, she opted not to. But then she got her first bill.Share
05:15
I got my first, get jitters remembering this day, but I got my first bill online and it was more than my rent. My rent at the time was 1400 and the first bill for the first month was 1550. And, I just, I don't, I don't know, I think I cried. And I just didn't know how I was going to do it. I think we were late on rent so that I could pay my student loans, and that was the only month that I can pay that much.
Share
Samantha Barry
05:47
Melanie called her loan company. She said she would wait to start making payments after all. Her plan was to save aggressively over the six-month grace period enough to make her payments more manageable. But when the grace period was up, she had to call them again and say she still couldn't afford the payments. The loan company adjusted her payback plan and lowered her payments to about $700 a month.
Share
06:11
So I've been paying off my student loans for about three years now and haven't missed a payment, because I'm in a forgiveness program with my student loans and with my job. In 20 years, if I pay all of my payments on time, whatever is left over is forgiven and it just gets taxed that year.
Share
Samantha Barry
06:29
While Melanie was prioritizing her
student loan
payments, she was struggling to make ends meet.Share
06:35
I had other expenses. So metro cards and light and gas and everything else that we have to pay. So that just started to slowly go on my credit cards. And eventually, my credit cards just got maxed out. I didn't even think that was possible, because I've never maxed out my credit cards before. But I mean it was lunch here, or my phone bill, or something. And at this point I got married.
Share
07:01
So now my husband and I are in a place where we are talking about children. We're talking about hopefully moving into somewhere of our own, house or whatever, condo. I mean, my parents had a house and you know, they tell me it's the best thing that they've ever done. But we don't really see it unfortunately in the near future because it's so hard to save with the amount of bills that we have.
Share
Samantha Barry
07:29
More on She Makes Money Moves right after this quick break.
Share
Break
Samantha Barry
08:04
I'm
Samantha Barry
, welcome back to She Makes Money Moves.Share
08:09
Today, Melanie and her husband sometimes struggle to pay all of their bills on time. In total, they bring in about $7,000 a month. After they paid $3,000 in rent.
Share
08:19
My school loans take precedent. Our credit card bills are probably the next big chunk. Whatever else we have left then we kind of figure out well, we paid our phone bill late this time so we have to pay that one on time, or you know we don't really need to pay our cable right now, so that can wait.
Share
08:37
And so next month we'd probably say okay we have to pay our cable, because we didn't do that. And then something else will fall by the wayside or go on a credit card. It's like a seesaw, you know? It's like we're drowning a little and then I try to wait as long as I can, but not too long so that it goes into like delinquency, and then I just use the money to put out that fire while another fire is building.
Share
Samantha Barry
09:01
Melanie knows there are some ways that she could cut back on her spending, but her work schedule makes it difficult.
Share
09:08
That's a very bad habit of mine, to order out. I'm at work odd hours, so I'm at work for lunch and dinner time, so that's usually twice a day that I'm ordering.
Share
Samantha Barry
09:18
She teaches pilates on the side to make extra money. But her dream is to become an entrepreneur. She's trying to launch an online wellness platform with her husband, but it's not yet profitable.
Share
09:29
But we're trying to just find ways to supplement our income, so that hopefully we can either pay off our debt faster or have a down payment for a home. The biggest struggle that I'm having right now is how to do it all, really. How to pay off my loans or get to a place where I can be forgiven, which means paying my loans on time, and save enough to live and enjoy life and retire, eventually.
Share
09:56
The problem is saving and paying off all of these debts and I'm having a very hard time juggling the two.
Share
Samantha Barry
10:11
Melanie is not alone. Today's expert
Farnoosh Torabi
has met with college students across the country who are worried about the burden of student loan
debt. But many of those students have no idea what their monthly payments will be after they graduate.Share
Farnoosh Torabi
10:27
Hi, I'm
Farnoosh Torabi
. I'm a financial expert, author and host of the podcast So Money. My latest book was called "When She Makes More".Share
Samantha Barry
10:36
So
Farnoosh
, I actually just read a survey about more than 1000 adults with student loan
debt. And what struck out to me was that more than half of the respondents thought their student loan
payments were based on their income. And one in ten thought that if they couldn't find a job after college, they wouldn't need to repay their loans at all, but both of those statements are false.Share
10:58
It seems to me like Melanie maybe didn't understand what she was signing up for when she took out her student loans, and her situation isn't unique.
Share
Farnoosh Torabi
11:05
It's unfortunately not unique. And you know, the reality is the
student loan
situation in America
is really a crisis.Share
Samantha Barry
11:12
The national average of
student loan
debt is a little under $25,000.Share
Farnoosh Torabi
11:16
But then you have situations like Melanie and many others where it's ballooned. Women, in particular, are the majority of the
student loan
borrowers in this country. The good news is more women are going to college than men, but that comes at a big cost.Share
Samantha Barry
11:32
So let's talk about that. Melanie took out almost a quarter of $1 million loans, her salary after graduation $85,000 a year. Do people need to be more conscious of their future earning potential when they're taking on
student loan
debt?Share
Farnoosh Torabi
11:46
If your starting salary's gonna be 85,000 you really shouldn't take out more than about half of that in
student loan
debt. Now, you might be getting angry with me because that's impossible with the current state of college costs.Share
11:58
And I think that it's kind of a crime for universities to charge you a quarter of $1 million dollars when they're going to send you out into the workforce without really the ability to comfortably pay that down.
Share
Samantha Barry
12:11
So for a job that pays $85,000 a year, you shouldn't really be borrowing more than $40,000. Let's say tuition is more than that, how should somebody financially plan for their education? What are the options?
Share
Farnoosh Torabi
12:22
You can go part-time, you can apply for scholarships, grants, work studies, a lot of companies might reimburse you a little bit.
Share
Samantha Barry
12:31
So Melanie thought, I think, that she was going to make more as a physical therapist. She probably thought her and her husband combined salary would be higher. I wonder if she factored in the interest rate of her loan, which will have a huge impact on what she ultimately winds up repaying. Melanie has a direct plus graduate loan, which unfortunately has the highest interest rate among federal loans.
Share
Farnoosh Torabi
12:55
You have to do the math. You know, you have to do the math.
Share
Samantha Barry
12:58
She is in a difficult financial situation, but on the positive side, she's confronting it, which is a great start, and she's doing some other things right too.
Share
Farnoosh Torabi
13:08
She's in touch with her loan officer, she's prioritizing the
student loan
debt.Share
Samantha Barry
13:12
And she's never missed a payment, which I thought was very impressive.
Share
Farnoosh Torabi
13:15
Yeah, I think that also the conversations that she's having with her partner are the right ones. It's important for couples to be talking about their goals, the future, just to sort of understand what they're working towards.
Share
Samantha Barry
13:28
When you looked at her budget overall and how she spends her money, what was your takeaway?
Share
Farnoosh Torabi
13:33
I think when I look at the makeup of her financial life, the bottom line is she has an income problem.
Share
Samantha Barry
13:38
They're not making enough as couple.
Share
Farnoosh Torabi
13:40
They're not making enough. And it's probably not what you want to hear, because it isn't something that you can fix overnight. And it's sometimes we feel like it's not something that we can control.
Share
Samantha Barry
13:50
She said it's the start of her career, so that's an important thing to note.
Share
Farnoosh Torabi
13:53
Yes, I will just remind everybody that even though you are at the beginning of your career, you may feel like you're just happy to have the job, you still have to negotiate. You know, companies expect their employees to ask for more.
Share
14:07
And I actually read a study recently that most millennials don't negotiate on the first job offer and to the surprise of the employer. But certainly she's qualified, she's educated, she's smart, you know? She has to start planting those seeds and her husband as well.
Share
Samantha Barry
14:24
I didn't negotiate my salary for my first job at all. I think my first two jobs I was like, oh my God, somebody's giving me a job? I'm so happy to be here, do you need me to pay you? And I didn't learn to negotiate for myself in a job probably until like my late 20's. Did you negotiate when you got your first job offer?
Share
Farnoosh Torabi
14:38
I did, I asked for a little bit more. She said no, but I will say that even just getting into the habit of asking, getting over that fear, was like oh, that wasn't so bad.
Share
Samantha Barry
14:48
So as Melanie gets promotions and changes jobs, she'll need to ask for more money at every turn. One thing that stood out for me, she said "Half the time I can't afford to pay my rent and my student loans and contribute to my savings". She needs to build back up her savings, at
Glamour
we call it a fallback fund.Share
15:05
Every woman needs enough savings to cover 3 to 6 months of living expenses in case she loses her job or has a personal crisis. Right now I heard her and her husband are trying to work on that. She's teaching pilates on the side, which is great, she's also starting a business with her husband, but that's not making money yet. For now, should she focus more on the profitable side hustles, like teaching?
Share
Farnoosh Torabi
15:27
Oh yes, if possible. I mean, I'm the queen of side hustles. When I was also in my twenties in
New York City
making $18 an hour working in magazines, I was dog sitting, I was freelance writing, I was doing whatever I could to supplement my income.Share
15:43
I also had
student loan
debt. You know, I think that now even more than ever there's so many options. The internet has made it so easy for us to easily get a job, whether that's quickly, you know, doing a freelance gig, or doing something in your neighborhood. If you have a car, can you like help someone move?Share
Samantha Barry
16:01
So if she can manage, Melanie should to take on more side hustles?
Share
Farnoosh Torabi
16:03
Yeah, and her husband. I'd say, you know, this is where women, this is like our strength and our weakness. Our strength is that we are so, we want to be so independent, right? We want to do it all on our own. We are very strong-willed. But the price that we pay for that is that sometimes we forget that there's so much value in leaning on others, right? And asking for help and asking for support.
Share
16:28
You have this partner here Melanie, right? Your husband who at the end of the day just wants to be there for you. And so here's an opportunity for her really. I think I tell this to all married women, like, the opportunity is that you can now ask this other person who has vowed his life to you to take some things off of your plate. I think that we're sometimes conditioned to not ask for help and that is to our detriment.
Share
16:54
Make it about the goals unless about the money. I think that when couples can really rally behind the future, which is we're going to have a family and we want to buy a house one day, and we want all these things. We want to design our life in a certain way. I think that generates a lot of excitement, motivation and use that as your compass that steers you.
Share
Samantha Barry
17:13
So it sounds like their goal is they want to have kids, but they don't think that they can afford it. How much do you think you need to have to have a child?
Share
Farnoosh Torabi
17:21
That's the magic question. I think that it's more about not having debt, getting that wiped out the picture. Not so much the student loans, I think it's important to get that under wraps to a point where she doesn't feel like she's paying down her loans and then she has no money left over.
Share
Samantha Barry
17:35
Not paycheck to paycheck, not eaning on the credit card. One thing that again, that is so common and I hear all the time amongst women that talked to us. Like, Glamour, my friends, she feels like she has to use credit cards to make ends meet.
Share
Farnoosh Torabi
17:49
Yeah, that's a crutch, you know? That's what you were pointing out earlier, is that not having that 3 to 6-month emergency fund and then, you know, I know that sounds to some people like, how am I ever going to get there? Start small.
Share
18:01
You know, that lunch that she's not going to buy anymore, put that $10, $15 dollars right into the account, and over time, in six months she'll see she has hundreds and hundreds of dollars. But try to survive on your cash and get that savings going.
Share
18:17
There's a great app that I recommend to a lot of people, it's called Digit and I have no affiliation with Digit. It's just this really great app that will look at how you're earning and how you're spending. It's hooked up to your bank and it will text you and say, hey Sam, I think today we should save four dollars.
Share
Samantha Barry
18:36
More on She Makes Money Moves right after this quick break.
Share
18:41
I'm
Samantha Barry,
welcome back to She Makes Money Moves.Share
18:45
So we talked about the ways that Melanie can build up your savings. At the same time, how can she tackle her student loans?
Share
Farnoosh Torabi
18:50
There's this great nonprofit that I love to reference, it's called the National Foundation For Credit Counseling, nfcc. orrg., they look at your budget, they kind of assess your debt situation and they have debt management programs. You know, they'll work with you over the course of a year or two years to modify your loans, help you with your budget and you just have someone else to talk to.
Share
Samantha Barry
19:12
An initial meeting with the NFCC is often free too, which is great, because no one's getting out of serious debt without a plan. I think that knowledge is so key and the head in the sand attitude honestly can make you feel so insecure and worried and financially vulnerable.
Share
19:29
But even if you're not where you want to be financially right now, having knowledge, going to free services, talking to people, making sure you've got plans in place can make you feel just so much more secure.
Share
Farnoosh Torabi
19:43
Thing is, Sam, our debt is not just a number on a spreadsheet, it is draining, it is emotionally draining. A little bit of short-term pain can go a long way, whether that means forgoing, delaying certain things, unfortunately, because you have to, because you want to get the debt out of the picture.
Share
20:00
Then maybe you want to think about the most affordable living options. It's not that maybe you can go and live in the big city yet, maybe you have to take a gap year and live with your family and save money on rent to kind of play some catch up.
Share
Samantha Barry
20:12
Maybe you're sharing a house for longer.
Share
Farnoosh Torabi
20:14
You're in a house for longer, you're commuting a little bit longer to get to your job, but you're also side hustling. We all have skills, whether as we speak a second language, we're really good at organization, we're really great at graphic design. I mean, think about some of the skills and the resources that you have access to that you can leverage to make a quick $500 extra week, that is a lot of extra.
Share
20:38
So if you do find yourself in a situation where you're debt is a big load when you graduate, think about all the ways you can design your life around that to make that really affordable and get that out of the picture as soon as possible.
Share
Samantha Barry
20:50
Melanie's in a difficult situation, but she's talking about us and she's confronting it.
Share
Farnoosh Torabi
20:55
And she's thinking ahead, you know? Which I think is really hard to stop and do sometimes, because life is so busy. And I think that's one of the challenges when you're younger and you're just thrown into the workforce, you're working all these hours, you're just trying to make your bills.
Share
21:11
And so it's hard to kind of get out of that and actually think about, okay where do I want to be in the next year, five years? That's what we call financial planning. She's kind of doing that, you know? And she's realizing she's got some struggles but she's trying to work her way through it. I'm hopeful for Melanie.
Share
Samantha Barry
21:32
If you have
student loan
debt, you're clearly not alone. If you're feeling overwhelmed, call your loan agency and ask if you can adjust your payments or reach out to a nonprofit like the NFCC.Share
21:44
Look, no one wants to admit, even to a stranger on the phone, that they messed up or that they're in over their heads. I might repeat this in every episode, but it's worth saying again. The only way to make uncomfortable conversations less awkward is by having them. Pick up the phone.
Share
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Samantha Barry
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