How can I get out of a mountain of grad school debt?
As a kid I dreamed of being a star entrepreneur, after reading the countless stories out there. As I grew up I held that dream tightly, deciding to first go to engineering school (a tiny school), where I got my bachelors and masters degrees.
I was hired right out as a product manager at a software company and I did that for four years, hoping to learn how products get made and sold.
After a few years I wanted to learn more about business, and was encouraged by those around me to go to business school for an MBA.
I did that, without thinking hard enough about the debt that I would be taking on or for that matter the debt I had already. I went to an alright school (top 100), I had a low GMAT (entrance exam) score and I graduated with average grades (3.44/4.00 GPA). I did not do an internship, due to an illness.
I then got married, and took on my wife’s debt (she got a master’s degree in writing and makes barely anything as a professional writer). Added to that I came down with a psychiatric illness; this cut into the MBA career prep, and kept me from making strong interpersonal connections. While I’m fine now, I had to use credit cards to stay afloat and pay the bills for a while.
All told, I’m $400k in debt and living with the in-laws. If I made a $100,000 salary at a “high paying” job it would just get me by. Right now I have a year’s supply of cash (on a ramen budget), a place to stay and no kids. I have a lot of free time as I’m still unemployed.
Part of me wants to use this desperation right now to try and start a project, develop a product and try to make a fortune off it.
The more logical part of me wants to find a ridiculously high paying job (well over $100,000), although my experience so far has given me significant doubts anything like that exists for someone who has been out of the workforce for coming up on four years and was not a stellar MBA student.
So I’m asking for some advice for going forward (I’m well aware I didn’t make the right choices in the past and that I didn’t have the best luck).
PG says the best way to get rich is to do a startup. But he doesn’t say what the best way to get rich is for people with a heavy debt load (if there is a way).
I want to get rid of this debt ASAP and I’m wondering what out-of-the box ways people can think of (if there are any).
Thanks in advance for your comments.
21 comments
[ 4.8 ms ] story [ 61.6 ms ] threadDo you have any ideas? What are you passionate about, or what do you have a lot of insider knowledge about?
Since then I've been hoping to write something or develop a website that would help another person going through a tough time (of any sorts) get through it successfully. Not sure how I would monetize it, but it would be cool if I could come up with a way to bring some sense to the self-help market.
Since I don't have training in counseling or psychology I even thought about going for the one year Master of Positive Psychology program at UPenn, but of course dropped the idea as it would add to my debt.
Anyway, that's the only idea I have had and only topic I really have passion for at the moment.
Maybe if I did some exploratory research on different things I could come up with some more areas I'd be interested in.
But I need to move fast as I'm terrified of defaulting on my bills when the year is out.
So what you search for is perspective and a feeling that everything is ok and will be ok. The thing is, you end up where you started but see things differently.
The financial issues are solved one day at a time.
Next factor, what's your monthly debt payment, how much can your wife earn, and how cheaply can you live?
Entrepreneurship is usually light on cash income. I'm embarrassed to say that it took me 10 years of entrepreneurship before I got my first payout that could cancel out your debt. I'm probably in the slow class, and you'll probably not be as much of a dunce as me. But to be on the safe side, is your wife cool with enduring 10 years of uncertainty before buying a house and having kids?
You could pay that down more deterministically by finding a job in finance or another high-income / lower upside field. Really depends on what is right for you. I'm an advocate for the entrepreneurial path, and wish you the best of luck with it. Just make sure you and your wife understand the potential sacrifices.
Her income is virtually non-existent right now.
We don't mind deferring a home purchase for the next few years (though we would like to move to Boston in a few years [which has a high cost of living]) and we can't have children for medical reasons.
As for finance jobs or other high-income jobs I have been under the impression that these are hard to come by if you're not near the top of the MBA class (my GPA 3.44/4.0), haven't done an internship, and don't get hired shortly after you graduate. Let me know if I'm wrong about this though.
This is what the changes in higher education costs are really about. Serfdom as a blue collar laborer, or serfdom as a white collar professional.
Treat the job search as a full-time job. Since you have flexibility living at home, you can afford to wait for a good job in some sense. Otherwise find a larger company that hires MBAs into training programs. Use your school MBA network. If you don't know many people, but live close, reconnect to the program, go to all the events you may have missed. Find an internship at the very least. Some of the bigger businesses will repay your MBA loans over time. Once you get in somewhere with a high upside, solve their problems for them. Find a mentor. Maybe your MBA school will hire you? Go into public service, work for the government or teach (in those cases your income based repayment loans are wiped after 10 years). Work for a nonprofit as an MBA. They always want such folks, usually pay well, and also qualify for the 10 year program.
Join the Peace Core for a year, go abroad, see the world, the problems, come back and apply for exclusive service related Federal jobs. They also have the 10 year loan forgiveness program.
Find a smaller company that has a hard time getting top MBAs but needs them. The MBA has some value, it can be just a scam as everyone makes it out to be.
Hell, go work for Yahoo, they are all about change right now. In your application pitch ideas about how to turn the organization around.
Your wife needs to write since she is a writer. If you are a coder you need to code. If you want to solve business problems, go solve business problems. The GPA is meaningless long term. Use your strengths, acknowledge your weaknesses, work around them, and above all stay hungry.
It's hard, I have a high debt load as well. What you cannot do is sit around and worry about it. You have to move forward. If you want, declare bankruptcy, learn from it and keep moving forward.
But you can make it work.
Pick tasks that make you better: code, write, solve.
Don't expect a lump sum salvation. Work at it, chip it away... Call your credit card companies and negotiate. You have the power. They want to be repaid.
You are not alone in your struggles.
This is factually untrue.
I have worked at three companies that ship, and watched close friends at a dozen others. A few didn't value QA at all, and allocate zero resources. A few genuinely value QA and allocate significant resources. The great majority purport to value it, but spend as little as they can, and treat QA staff very poorly (poor respect, poor tools to do their job, and poor pay).
How much is student loan debt vs credit card debt?
As I understand in the US, you may still have some of the student loan debt remain after a bankruptcy.
I haven't started a successful business, but I've heard many, many entrepreneurs say not to expect a significant income for 2-3 years. And even then it would probably be minimal and not cover your debt obligations.
Bankruptcy is obviously a personal choice to make.
However, please realise that some people are more prone to getting into debt and even with a bankruptcy, if your behaviour doesn't change, you may wind up right back in the same situation in a few years.
I don't mean this as a personal attack, but from what you wrote, your wife sounds like she has similar issues with money.
I came out of college about $40,000 in debt and paid it off in about 2 years. I listened to Dave Ramsey a lot during this period to keep me motivated - http://www.daveramsey.com/radio/home/
Desperate and looking for get-rich-quick schemes is not conducive to successful entrepreneurship. Most successful businesses take years to build, and most business ventures are not successful. You should consider whether it can be a part of your ongoing career plans, but it's not a likely solution to your immediate problems.
What's your income situation right now? You can try to negotiate the interest rates down to minimize your monthly payments. Once you are able to handle the payments and workload with ease, I strongly suggest to start with freelancing on the side. Most successful entrepreneurs I know start off with consulting and freelancing before productizing their services or physical products.
It will really help a lot.
Starting a startup solely for the money is really putting yourself under huge pressure to succeed, - the majority of startups fail regardless so you're setting yourself up for a fall if you pin all your hopes on making it big first time round. You also won't be able to afford to take up opportunities that might help traction for your startup and that can be very frustrating.
It sucks bad enough when your startup fails even when you aren't counting on it for your living expenses never mind when you need it to repay debt too!
Every decision you would make in the business would be based on 'what brings in money now' and that isn't always the best decision longer term.
My suggestions are :-
1)Start income based repayments on the student loans
2) List out your other debts, get exact balances & know your APR for each.
3) If you are mentally & physically ready you & your wife should both search for some form of guaranteed income, min of $25k each (even if it's part time) The debt belongs to both of you so it should be tackled together.
4)Use the snowball method to clear your non-student loan debts.
5) Your current living expenses are $4100 pcm or $49200 p/a, so even if you earned $100k between you, that would give an extra $50k p/a to reduce your debts down year on year.
6) Allow your creativity to run free and pursue your own ideas in the evening/weekends. Test out lots of ideas (for free)
7) Hold onto your guaranteed income & let your startup grow naturally.
8) Find ways to reduce your debt (0% cards etc) & up your income (freelance work)
Worst case scenario it takes 8-10 years to clear your debt but you DO get there. Best case scenario you find higher paid jobs, you earn income from your startup and it transitions into a full time role for you. Debts are paid off in in a fraction of that time.
If you go straight into trying to think up a startup full-time you're not even guaranteed it will be clear in 10 years. Debt will probably just carry on going up! At least with the worst case scenario you will be clear in a reasonable time frame & a successful startup bring your debt free date nearer and nearer.
When side projects aren't working out and you're having a bad day it feels way more personal if you need that money to live. Starting a startup should be fun. Needing the cash, takes that fun away.
I know it feels like you need some kind of miracle to get out of debt but it all starts with a single dollar.
Student loans in the US can generally be deferred, but as I understand it dismissal in bankruptcy is likely only if the court becomes convinced that you will never be able to repay -- such as if you become 100% disabled, or are simply too old to earn enough to repay the loans. I figure I can stay enrolled until I'm 85 or so....
I try to take classes that I'm actually interested in or have some bearing on my career or looks good on the resume, but if nothing is available (or when something I wanted gets canceled) I can take literally anything so long as it is for credit AND I don't withdraw from the class (but failing the class is okay). I am enrolled in a degree plan for an Associate of Applied Science in Digital Video because of interest, but the school doesn't nag me about what I take, and I don't care. I could have gone for undeclared major, but when I picked a major the school put an estimated date of completion on my record. I had to go back once already and have that extended. It does have to be an accredited school, but community colleges don't make a habit of turning anyone away and they're usually extremely cheap. Textbooks are often available used on Amazon or eBay or Craigslist but be careful of version.
At one point we moved and the classes I wanted didn't make, so I ended up taking Principle of Real Estate 1 and 2. Moving took too much time and I blew off the class work and (for the first time in my life) deliberately chose to fail the classes. As long as my GPA stays reasonable, I can weather a few bad grades. A + F = C, or A + A + F = B, and getting an A is really easy, so I can fail quite a lot before I end up on academic probation.
My free advice, worth every cent you're paying for it, is: Look into whether you can get your and your wife's student loans put on deferment. (AND PAY CASH OR GET SCHOLARSHIPS FOR CLASSES, DON'T TAKE ON MORE STUDENT LOANS!!!) For me, one semester of tuition costs me about the equivalent of one student loan payment. Your savings would be considerably greater than mine. Interest continues to accrue and get rolled into the loan balance and that compounds the interest, but if you can use the money you free up to pay other credit card debt you can dig your way out of that, and then work on the student loans.
I don't know if you can get your loans put in deferment, but do so if you can. WHETHER YOU CAN OR NOT, it is WAY past time to talk to a bankruptcy attorney. You can probably get a fresh start on everything else that way, put your student loans on deferment for a long time, and get a job -- practically any job -- and start paying the student loans off and getting a life. And if your wife doesn't want a bankruptcy on her credit, consider getting a no-contest divorce and take all the credit card debt on yourself, and then get the bankruptcy. Once you're out of the bankruptcy, you can consider re-marrying. But the feasibility of that approach hinges on your state laws. That's why you need a lawyer.
You do NOT need to gamble on making a successful start up out of your year of meager cash, complete lack of marketable ideas, and further sponging off your in-laws. Anyone, not just you, would be far too likely to end up with no cash and p.o.'d in-laws who decide that their daughter might be welcome to live there but not as long as you are there with her.
I made the same stupid mistake you both did, of taking on huge debt without sufficient thought. You and I, at least, had reason to believe that we needed our degrees to make ourselves stand out above other candidates for jobs. I know that once I am in the job, my work and my ideas will keep me in the job and move me upward, but I need to be able to...