My vignette in the Des Moines Register’s “Chained to college debt” feature

Earlier this winter, I had the opportunity to participate in a round table discussion with Jens Krogstad of the Des Moines Register, where college graduates shared their financial aid and student debt stories with members of the newspaper’s staff. This past Sunday, our stories were shared as part of a front page special report about how the rising cost of post-secondary education is affecting college students and graduates who have taken out student loans.

The article revealed that Iowa has the third largest average student debt in the United States, with 72% of Iowa’s college graduates holding some amount of student debt. Since my graduation last year, I have invested much of my free time in my own financial education, but I was nevertheless shocked by many of the statistics shared through the story. College costs are escalating too quickly, interest rates are too high, and lack of access to scholarships and grants has forced an ever-growing percentage of college students to turn to student loans as their primary means of paying for their education. This system is flawed, and I know from experience that the road to student debt repayment can feel hopeless and overwhelming.

Student debt is not a death sentence, though, no matter how many trillions of dollars my generation must repay. The one story that never gets told is that student loan repayment can be manageable. After consolidating my student loans and carefully refining my budget last summer, I now feel empowered and capable of repaying my debt and building a strong financial future. After I build up my emergency fund, I plan to begin contributing more than my minimum monthly payments so that I can pay back my loans in less time. Would I rather have an extra $250 each month to put toward savings, or retirement, or travel? Sure. But that doesn’t mean that student loan repayment is interfering with the way I live my life.

In my story, I shared personal financial information that has long been taboo to discuss among friends and family, much less the public. But it is my hope that my peers and future generations of college students will not be afraid to discuss student debt, because it is through sharing our stories that our debt can feel a little more manageable, our financial situations a little less hopeless.

Read the front page story from this Sunday’s Des Moines Register, and the vignettes featuring other Iowa college graduates, and you’ll see that, yes, higher education needs to change, but that student debt is something we’re all working through. Maybe you’ll feel a little less alone. Maybe you’ll find the tools you need to take control of your student debt. Maybe you’ll find a way to change this path our system is on for the better.

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Why universities ask for (even more) money from you

If you’re a college graduate, you’ve likely received solicitations for donations from your alma mater. My first e-mail solicitation arrived yesterday, on the morning of Valentine’s Day, and featured the adorable bulldog video below and an appeal to contribute to the Drake Fund, the pool of donations that Drake University uses to support student scholarships, University programs and the school’s most immediate needs. I appreciated this solicitation for two reasons: one, because it was just darn cute, and two, because it wasn’t a random, out of the blue appeal — it was tied to the celebration of a holiday.

From the uproar I witnessed on Facebook and Twitter yesterday, many of my fellow recent graduates did not feel the same. These new alumni were outraged that their beloved university had reached out to them for money so soon after graduation — the school where they had invested so much of their money, or their family’s money, over the years, and to which they were still paying back student loans (and likely would be for a while).

As a recent grad myself, I understand that. When I decided to attend a private college, my tuition required that my family make financial sacrifices, and as a graduate I now chip away at my student loan debt each month at the expense of other financial needs. Even so, I still felt unsettled by my peers’ often angry responses to this e-mail across the Internet yesterday. Here’s why:

  • Our tuition is the money we pay to educational institutions in exchange for the education we receive. Just like anything else we purchase, it’s money that we pay in exchange for a service. This is not a “donation” to Drake University. This money pays for the professors who teach us, for the resources we are provided, and for the opportunities to which we are granted access.
  • Student loans may extend the amount of time we have to pay the money we owe to a university, but we’re paying now for something we have already received. Your lender has already paid the university. Your student loan payments do not support the university in any way; they’re going straight to the lender.
  • Attending a university is expensive now, but it will only continue to get more expensive over time. If your university provided you with an exemplary education, if it provided you with the skills that you need to survive after college, if it helped you find your passion or an internship or a job, those benefits you reaped are only going to get more expensive for future generations. Supporting your university helps provide scholarships to the students who need them most, making it possible for more students to share the life-changing experience you had, despite socioeconomic status or financial hardship. If you received scholarships that made your education less expensive, the best way to show gratitude for the opportunities you were given is to pay it forward.

My biggest frustration, though, is the attitude that because we are young, we are somehow excused from giving back. If you want to be the type of person who contributes your time and financial support to the organizations and causes that are important to you, start being that person now — otherwise, you’ll always find excuses or obstacles or “special circumstances” to stand in your way. There are plenty of non-profits that would appreciate your donation of even $5 a month. The donations I make to local and global organizations may seem small, but when compounded with the donations of the people around me, those donations can make a difference. (Want proof? Check out 100+ Chicks for Charity.]

Now here’s a disclaimer: I’m not saying you need to donate to your university. If I was, I’d be a hypocrite, because my donations have thus far been given elsewhere. But if you’re choosing not to support your alma mater, at least understand why your university (still) wants your money.

How to consolidate your student loans

About six months have passed since I consolidated my student loan debt, and in that time, many fellow college graduates have reached out to me for information about how to consolidate their own student loans. Consolidating student loans can simplify the process of paying back student loans, reduce the interest rate you pay each month, and eliminate the hassle of working with ever-changing loan servicers. I’m not a financial expert by any means, but I thought I’d share a bit of wisdom from my own experience to help my peers get started with this process.

1. The first step is to compile information about all of your loans eligible for consolidation. Any loans provided through the government (Stafford, Direct, etc.) are eligible for consolidation; I received two loans directly through Iowa Student Loan that are considered private loans, so those are not eligible for consolidation. It’s likely that during your time in college, your student loans switched hands a few times between servicers, so the easiest way to figure out who services each of your loans is to visit the National Student Loan Data System (NSLDS) site: https://www.nslds.ed.gov/. This is a service of the U.S. Department of Education that documents all federal student loans you have taken out. For each loan listed, you will find information such as the principal balance, the date the balance was disbursed, the interest rate, the outstanding interest that has accrued (if unsubsidized), and the servicer for the loan (important!). NOTE: You may need your PIN to gain access to this database. You would have received a 4-digit PIN when you completed the student loan entrance counseling way back during your senior year in high school, so if you don’t know what your PIN is anymore, you can have that recovered for you through the site.

2. You have a few options when you’re ready to consolidate your federal loans. At the time of my research (spring 2011), there were only four private lenders who offered student loan consolidation – Wells Fargo, Chase, NextStudent and Student Loan Network. These private lenders may also consolidate private loans, if you have any of those, but there’s one caveat to be aware of: whether they will consolidate your loans and the starting interest rate are determined based on your credit score, and your interest rate will not be fixed. More info can be found here.

The other option is to consolidate through the Federal Direct Consolidation Loan program. With the federal consolidation program, there is no risk of being denied a consolidation, and the interest rate is determined by averaging the interest rates on the individual loans you have taken out. I chose to go with the federal program because it was easier than seeking out information from each of the private lenders, and because I wasn’t sure what type of interest rate I would find because I don’t have an extensive credit history yet. I was able to get the process moving more quickly, which was important to me because I dropped down to part-time status before actually graduating and had to start paying my loans back sooner than I thought I would!

3. One other thing to note: regardless of who you set up your consolidation through, if you say that you’re going to use auto-pay on the loans, your interest rate will drop by 0.25% because you’re seen as a more reliable borrower. I would highly recommend doing this — low interest rates are fun, and then you won’t have to worry about remembering to pay each month.

Beginning my financial education

One of my favorite things about having graduated from college? Lifelong learning has a chance to flourish. Outside of the confines of syllabi and lesson plans, I’ve reveled in the opportunity to learn my own lessons. At the top of my current course load? Personal finance.

I was raised in a family that has always had a bit of trouble making ends meet. My parents worked harder than I could imagine to provide us with amazing opportunities and experiences, sacrificing their own finances to do so. I’ve seen the difference between financial anxiety and empowerment, and I knew I’d have to work hard to gain the skills and understanding necessary to reach the empowerment I sought.

Thus far, this has meant a few different changes in behavior and attitude:

  • Meeting or exceeding the company match for my retirement accounts.
  • Contributing $1 to my primary savings account with each debit card transaction.
  • Maintaining “untouchable” savings accounts in Minnesota.
  • Creating goal-specific savings accounts for big ticket items with Smarty Pig (1.35% APY on hundreds or thousands of dollars makes a difference).
  • Consolidating my student loan debt and automating my payments for a 0.25% interest rate reduction.
  • Opening a new credit card (with a terrible interest rate) that I pay off (on time) each month to build my FICO score.
  • Using Mint.com to track trends in spending habits and to ensure my spending matches my budgeting.
  • And, my favorite: Calculating my net worth on a monthly basis to watch that number climb. I’ve gained almost $2,300 in five months, and that number is going to skyrocket once I begin paying back my student loans next month.

Individually, these behaviors are small, even inconsequential. But together, I’ve watched them make a difference month after month. My financial education is by no means complete – investing is still a murky topic for me, despite my forthcoming investment in AAPL, and beginning to pay my 2010 taxes and my student loan payments simultaneously is not the ideal situation. But I’m proud that I’ve learned, on my own, what it means to consolidate a loan, how to diversify my retirement plan selections, and the best options for savings. And six months ago, I never could have predicted that I’d look forward to the close of each month to see how much I’d gained in net worth. Class may still be in session, but I think I’m earning an A.