[Anonymous]

Not 100% sure this topic is right for this forum – but let me lay it out.

As aspiring, or already CPAs, we are required to get an education. Many of us even have more than 4 years, whether due to career changes or state mandated minimum education requirements to become licensed. Based on this, as well as how expensive an education is nowadays, it is a good bet that most of you, like me, have a negative net worth due to a large amount of debt.

Although partly myth – but mostly true in my experience – accountants are conservative, goal-oriented and can be frugal when they set their minds to it.

So, how did, or do, you deal with your student loans?

I am around two years out of school with around student loan debt in the $30’s. I am on a long payment plan (I think it is 25 years – I should know this!) and have a minimum payment of around 240/month – although I pay closer to $400/month. I recently moved to a nicer area closer to where I work (much more expensive), and purchased a really nice La-Z-Boy couch and am thinking of getting a big screen TV. BUT, I’ve started to feel guilty. Am I being irresponsible? Should I be living more frugally and try to triple my payments?

If I was smart, I’d live in a less convenient area and with roommates (likely chopping my rent in half but also adding to my commute). I’d stop buying shit that I don’t need (my little tv that I bought when I was 14 still works great – only 1 trip a year out of town to see my family would suffice). If I were smart, I’d live super frugally for the next 10 years of my life and put any salary increases towards my loan balance. But then again, I want to live, am easily able to pay all of my bills and save a little each month, and tend to think of student loan debt as good debt (vs. credit card debt, which I pay off completely every month). So although I do feel a little guilty, I’m not convinced I’m doing things wrong. Am I?

I am also curious on how you managed your debt after college.

[HardWork]

You should pay it off if the interest rate is above the rate of return on any investments you have. Since if your student loans are 3% and you pay it off, that means a GUARANTEED 3% return (something you won't be able to get in the market). Otherwise pay it off slowly, while investing and you'll still be on top.

FAR- 7/15
AUD- 8/28
BEC- 10/6
REG- 11/21

[fuzyfro89]

Back to Anonny's question:

The $30k was a very reasonable amount of debt to take on. I can't remember who said this, but a general rule is to keep your total debt upon graduation to less than your GROSS SALARY in 1 year of working. Obviously, no one expects you to pay it back in 1 year. Student loans were designed to help people improve their station in life, and most people do just that. It gets annoying when you hear about people studying sports management, thinking they'll be the next ESPN anchor, or history, with plans to be a teacher, while taking out $50k+ in loans… sometimes $100k+. It's one thing to try and better yourself, and it's another to pay up for an “experience”.

In these situations, parents, professors, schools, and the govt, are doing these people a disservice by allowing them to bury themselves in debt.

Annony, you are not buried in debt. You didn't mention your salary, but $30k debt is very manageable, ESPECIALLY since you chose a career that offers solid job prospects and salary potential.

I know most people take one extreme or another (eat Ramen noodles 3x/day for 5 years and pay it all off, vs others who call it “good” debt and will pay it for 25 years). The secret? Both are wrong, in my opinion. Aim for a responsible, reasonable, payoff date, and then make it happen!

Full disclosure: My parents paid for my education. So no, I can't relate to the situation; however, I have a lot of friends who have used debt very intelligently to better themselves, and some who have “unknowingly” buried themselves without giving it a second though.

Today:

– $400/mo toward your debt is very reasonable (try and increase this over time…)

– Buy the damn TV. It's really not a big deal.

– Enjoy your apartment and short commute, but be aware of what you're giving up for the extra $XXX you pay each month for it (that's an extra 1-2…3?) years of paying your loans

Question: At $400/mo, what is your projected payoff?

[jeff]

I would recommend cash flow planning to anyone that hasn't put it all on paper…it can be a real eye-opener.

https://www.daveramsey.com/tools/budget-forms/

[Anonymous]

SMH! Wow, just wow! I'm going to go take another pain pill and go back to sleep. Apparently, I misread some of these posts because it sounds like… well, some of them sound demeaning, degrading and judgmental. Wow!

[Anonymous]

I hope everyone realizes the post where I agreed with @Iron was sarcastic.

[jeff]

This is from 2007, so the tax rates will sound antiquated, but Dave

(1) walks through the math of using debt for investing (or alternatively, avoiding paying off a debt so you can invest and make a return on the spread…it's the same thing) and

(2) the notion that you shouldn't pay off your house early because it's a good tax writeoff.

Also – you're more than free to disagree…debates like this are great…but you're not free to be a heavy-handed jerk about it 😉

[Study Monk]

My moms a big Dave Ramsey fan, so I don't judge. I think the world would be a better place if more people took Dave Ramsey's advice. I especially liked his perspective on measuring the risk of losing your home by chasing that extra few percent of interest of income. His comment on the deduction is up for debate. I would argue that the deduction brings the interest I pay on my mortgage from 5% down to 3%. If I was able to get 8% returns on my investment less 2% for taxes I would be making $3,000 a year for every $100,000 invested after paying the bank. Moreover the first $19,500 of investing can be done tax free through 401(k) and IRA(for those who qualify), and even more for the self employed. The money invested in my home would be losing purchasing power with inflation.

For most people its not worth the risk like Dave Ramsey said. However if you have a few hundred thousand invested and a line of credit on your house you may not ever be at risk of losing your home. David Ramsey's comments apply to at least 80% of the population. The other 20% of the population may have enough assets to bring down the risk of losing a home substantially. Moreover there is a risk of having all your money invested in your home that can easily be knocked over by an earthquake, flash flood, or tornado.

Student loans are different that mortgages in that the return CAN be substantially greater than even 20% on your investment if you land a higher paying job. Thats why for many people who have no relevant education it can be a great investment. If you are pairing a MBA, MSA, or MST on top of a name that already has two or three credentials it can be a bad investment if student loans are involved. The average working class stiff in the bottom 20% could greatly benefit in investing in higher education.

I will say that Ramsey in that video is a perfect example of heavy-handed lol.

I spoke to an ancient wise man who sent me on a mushroom induced journey through an ancient forest to find the key to passing the CPA exam. A talking spider monkey told me to throw the last of my drinking water in the dirt to find what I was looking for. So I followed his instructions and the following message appeared in the soil:

"Do 5000 multiple choice questions for each section"

[jeff]

What? “Idiot” is heavy-handed? 🙂

One thing to remember about student loans…they aren't bankrupt-able…only two ways to get rid of them…pay them down to zero or die.

[Study Monk]

Well, I hope I get rid of my student loans by paying them down to zero 😉

I spoke to an ancient wise man who sent me on a mushroom induced journey through an ancient forest to find the key to passing the CPA exam. A talking spider monkey told me to throw the last of my drinking water in the dirt to find what I was looking for. So I followed his instructions and the following message appeared in the soil:

"Do 5000 multiple choice questions for each section"

[John Tucker]

Debt is just a tool….that's it. Debt in and of itself isn't good or bad, what makes it good or bad is how the person that takes it out utilizes it and the interest rate that they “allow” their lender to charge on it.

I think everyone would agree that someone coming from a poor background that takes out $22,000 in students loans to finance an entire bachelor's degree in Accounting which also (through left-overs) covers their cost of prep and exam fees to obtain a CPA License, that goes on and is making $60,000 plus a year for the next 25-35 years made a good investment right?

But then I think everyone would also agree that someone that took out $150,000 to finance a degree in Psychology that is working off jobs at Non Profits in Child Behavioral roles bringing in about $30,000 a year at max made a dumb decision.

In both cases, the debt was just a tool to construct whatever career you were looking to construct. It's YOU THE BUILDER that has to use the tool properly. A hammer is a tool that can either build an asset like a house, or it can be used to commit a crime in killing your fellow man. A gun is a tool that can be either used to protect the country in war, or used to rob, steal and kill your fellow man.

The issue isn't student loans, it's the ill-prepared, lack of foresight and planning, college students that are taking out too much in debt, living in expensive dorms and picking insane majors that are causing the issues. Give those monies to prudent college students and it's a win-win-win, the student becomes successful, the government gets revenues from the interest paid, and society has another efficient middle class tax paying citizen added to the payrolls.

* State of MA CPA Exam Candidate
- BEC: Sunday, August 24th
- FAR: Saturday, November 29th
- AUD: TBA for February 2015
- REG: TBA for May 2015

[Study Monk]

John Tucker ………………….perfectly said!

I spoke to an ancient wise man who sent me on a mushroom induced journey through an ancient forest to find the key to passing the CPA exam. A talking spider monkey told me to throw the last of my drinking water in the dirt to find what I was looking for. So I followed his instructions and the following message appeared in the soil:

"Do 5000 multiple choice questions for each section"

[yourmomsaCPA]

Kind of OT but kind of on topic, too – I LOOOOOOVE Dave's take on college. I grew up poor (real poor – not saying you're poor but wearing Nike's and your parents drive a decent car poor. My mom was single for the better part of my childhood and I watched her basically be trapped in a job. She couldn't NOT work and she couldn't quit and make the money somewhere else (and by “the money” I mean not much). I KNEW I would never be in that position. If I wanted to flip my desk and walk out — I was going to do it. I worked my rear off in high school to be eligible for academic scholarships which covered tuition/fees. I took 18 hours a semester to get my 150 hours in 3.5 years because the fewer semesters = fewer dollars spent. I worked as a waitress all through college AND I lived in the dorms for two years. AND I graduated with a 4.0 and no debt. You can't tell me that in a “traditional” situation (normal college age), that there is any reason for a student loan unless you have exhausted other money saving options (do you live in an apartment? Why? Do you work? Why not?)

Dave is not on the entitlement train when it comes to college. Nobody ever said you didn't have to work when you were attending. It's ridiculous.

Now, that being said my husband went on a track scholarship and didn't receive an employer-issued paycheck EVER IN HIS LIFE until he was a college grad. He also graduated in 3.5 years with no debt (his rich parents paid, though) so we have very interesting debates regarding our kids. Even saving tens of thousands for their college bothers me. Unless they have some kind of “job” that is earning them scholarship money, I want them to work.

Seriously though, everyone should know what being poor really means.

FAR - 87 2/18/14
AUD - 84 4/2/14
REG - 87 7/23/14
BEC - 78 8/26/14

I'm finally an *official* CPA - TX

[Anonymous]

Anyone saying there's always a way to do it debt free needs to study more. C'mon, people. We're all studying for the same exam. Statements that use words like “always,” “must,” and “never” are usually not the right answer. 😉

[tomq04]

Want to make money?

Do what I tell people, “get an engineering degree”

REG- (1) 76
FAR- (2) 64, (5)74, (7)83 (Over achiever!)
AUD- (3) 70, (4) 75
BEC- (6) 75

[Anonymous]

@bbrandenburg10 – I knew you were being sarcastic. But maybe it takes someone fluent in smarta$$ to recognize it. I happen to speak it as a second language so I got your point. No worries here.

What baffles me to no end is how well educated people can make a generalization based upon their own life and individual situation. We don't all get the same breaks just like we don't all get the same BS. We are all different and ain't life grand because of it. If we were all the same, this world would suck.

As for Dave Ramsey… I like him! And so do my former creditors. Thanks to him, I have no credit card debt, no mortgage and no car payment. A debt snowball is a beautiful thing. I wonder if I can get CE credit for attending his course. If so I know where I'm getting mine next year! Woo Hoo!!

To the OP – First a Lazyboy sofa is a good investment. You will always need a couch to sit on. Buying one that is well built is a good move. I bought a Lazyboy sofa 25 years ago and I've had it recovered twice. It still looks new and will last a long time. A sofa isn't a disposable item in my opinion. And if you sell it now, you won't get enough to cover the cost of another one so you might as well get used to owning that one. I hope it's paid for and you aren't paying stupid tax on it. You also need a place to live. How much are you saving by living where you live? Commuting expense? Food expense (assuming you go home and eat lunch instead of eating out)? There are a lot of factors to consider. If you want a big screen television then start a separate savings account for it and pay cash. It's your money! You decide how to spend it. My only advice is to budget the savings for that TV. If you don't budget the money you blow on non-necessities, then you are going to blow the budget quick.

This is just my opinion and I'm still kind of out of it on pain pills so, yeah, I don't care who disagrees with me. Y'all have fun.

[Author]

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