I don't agree with you .Except point 1 and 3, I was in the same category when I graduated but with 70K plus of student loans to pay, it took some effort. This is definitely a story to share and read.
If you have 1300 in disposable income each month and a salary of 100k+, you should have no trouble with your student loans.
But that's not the situation for most new college graduates, who are making, on average, about 50k (the median is probably lower). That's the core problem with the tuition bubble, and the student loan time bomb. The undergraduate ecosystem of the last 20 years is going to stifle the economy for the next 20-30 years.
Note that this guy was an MBA graduate. I believe that there is much less non-loan based financial aid available for MBA students than for undergraduates and so they tend to have much higher debt than undergraduates. (It's similar for law students, too).
So yes, a new graduate with a bachelor's degree on average will be making much less than this guy--but also should have a lot less debt, even if they went to Harvard.
The part where he cashed out the IRA at a 40% penalty to do it does suggest that much of the debt problem that gets so much attention is personal in nature. I would think it might occur to an MBA to apply a little bit of that business training to their personal finances.
It's a 10% penalty. The rest is presumably taxes that were just deferred anyway. If the guaranteed rate of return for the IRA was 1% and the student loan was 5% interest, he'd easily come out ahead by retirement. Especially since tax rates will almost certainly be a lot higher in the future.
2. if you read through his blog he makes 103k a year, which after taxes over the amount of time it took him to pay off the loan is 40 something k.
3. He has mortgage payments, also that may be cheaper than renting it depends on where you live, but it is why i am looking at buying.
4. you don't? he was 27 and had 40k saved up, not a huge amount. Why you wouldn't have a retirement account to take advantage of compound interest for as long as you can is beyond me.
5.depends where they are working but I just graduated from college and i have that much, granted i live cheaply and throw most of it towards student loans.
what he's saying is that being frugal you can pay off your debts quicker and save money on interest. Its nothing groundbreaking but in America a lot of people make stupid decisions about how they buy things (on credit) and end up paying a lot of money in interest and retiring wayyyy later than they need to.
TLDR: Wealthy individual from wealthy family who already owns a home, a car, a motorcycle a sizable retirement account (for his age), who made almost $100k/year (at the start of his experiment) and has $1300 in disposal income each month after all expenses was able to pay off his loans in 7 months.
For those of us who are not already wealthy, this is a non-story.
He cashed out a retirement plan to partly pay down his debt! He is less stressed about this!
Some people have more money than sense. Student loans are relatively low interest & you can take your time paying them off. The future value of the money is that retirement plan is going to be so much more than any interest that would have accumulated on the loan.
As someone with a drastically negative net worth, I can honestly say that in this economy having debt around your neck is much more stressful than I am really comfortable with, even considering the low interest rates on student loans.
My point is: is it stressful just because you feel it is stressful, or did you actually put a plan/budget together and feel stressed out after looking at the results of that?
Think about this, would you rather be stressed about this now, when you have a lifetime of earnings & potential ahead of you, or later, when you realize you can't retire when you want to because your retirement fund is low?
N.B.: I don't know your specific situation, but I'm speaking in general terms/about the article.
Logically, it makes more sense to pay off the loans on schedule, and put additional payments into a vehicle that will provide returns that will outpace the interest rates on the loans.
The retirement plan was almost certainly making less risk-free interest than the interest he'd effectively make (risk-free, hence apples-to-apples comparable) by paying off the student loan. When the difference in interest is great enough it's financially prudent to cash out the retirement plan to pay off the student loan.
I think it is more interesting that folks that graduate from college don't know how to budget. A surprising number of young people I've interacted with were astonished at my 'you can leave easily on $500/month for food' comment. [1]
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[ 4.3 ms ] story [ 37.1 ms ] threadBut that's not the situation for most new college graduates, who are making, on average, about 50k (the median is probably lower). That's the core problem with the tuition bubble, and the student loan time bomb. The undergraduate ecosystem of the last 20 years is going to stifle the economy for the next 20-30 years.
So yes, a new graduate with a bachelor's degree on average will be making much less than this guy--but also should have a lot less debt, even if they went to Harvard.
2. Don't eat out for a few weeks.
3. Pay off student loan.
The part where he cashed out the IRA at a 40% penalty to do it does suggest that much of the debt problem that gets so much attention is personal in nature. I would think it might occur to an MBA to apply a little bit of that business training to their personal finances.
He netted ~$8k from selling it. That adds a few months of whatever he was doing to come up with the part that wasn't covered by the IRA and bike.
1. obviously helps
2. if you read through his blog he makes 103k a year, which after taxes over the amount of time it took him to pay off the loan is 40 something k.
3. He has mortgage payments, also that may be cheaper than renting it depends on where you live, but it is why i am looking at buying.
4. you don't? he was 27 and had 40k saved up, not a huge amount. Why you wouldn't have a retirement account to take advantage of compound interest for as long as you can is beyond me.
5.depends where they are working but I just graduated from college and i have that much, granted i live cheaply and throw most of it towards student loans.
what he's saying is that being frugal you can pay off your debts quicker and save money on interest. Its nothing groundbreaking but in America a lot of people make stupid decisions about how they buy things (on credit) and end up paying a lot of money in interest and retiring wayyyy later than they need to.
Step 2: Write a book.
For those of us who are not already wealthy, this is a non-story.
2. Don't be not rich
Some people have more money than sense. Student loans are relatively low interest & you can take your time paying them off. The future value of the money is that retirement plan is going to be so much more than any interest that would have accumulated on the loan.
Debt isn't necessarily bad!
Think about this, would you rather be stressed about this now, when you have a lifetime of earnings & potential ahead of you, or later, when you realize you can't retire when you want to because your retirement fund is low?
N.B.: I don't know your specific situation, but I'm speaking in general terms/about the article.
However, personally, I would rather have no debt.
Yes but only if people know how to manage it. Problem is that most people (at least in US statistically) do not know how to do that.
[1] https://docs.google.com/spreadsheet/ccc?key=0Atwe7dq6iPQHdDU...