One of the driving forces behind my focus on student loans is the feeling of helplessness that comes with student loan debt.
One specific ways borrowers can feel helpless is with their job situation.
Borrowers may even hate their job, but they feel stuck because of their student loan debt. They have a lot of debt, so why would they ever rock the boat by applying to a different job? Or, God forbid, leave the career they went into so much debt for?
One of the most difficult stories I read when I was doing research for Student Loan Solution was about someone who turned down their dream job in marine biology because it wouldn’t pay enough to cover their nearly $100k of student loan debt. Instead they moved back home and took a store manager job at a retail store, which paid more than the job in marine biology.
They interviewed one of the borrower’s parents in the article and they said he seemed very unhappy. All he did was work, come home, and go to his room.
He was miserable.
He isn’t alone. There are millions of student loan borrowers in default, and millions more who are miserable in their current work situation but feel like they can’t change anything because of their loans.
If I could speak to the person in this story I would help him see how he could make working in marine biology possible.
There are always options for dealing with debt strategically. This is especially true with student loans.
If you hate your job but feel helpless because of your student loans, or this describes someone close to you, I wrote this for you. I’ll go through some of the options available to you and show you that by making a plan of action you can move on from your miserable job and not let your student loans keep you from living a happy and fulfilling life.
How Bad Is Your Situation?
The first thing I want to discuss is how bad your situation is. If you are being verbally, physically, or sexually abused at your current employer, it goes without saying that leaving ASAP is a top priority. I won’t pretend to understand how difficult this situation is for you, nor would I ever judge you for whatever choice you end up making, be it quitting tomorrow or staying for a longer-period of time until you have arrangements in place.
With that being said, in an ideal situation you would report your employer and put the ball in the employer’s court to make things right. If they retaliate against you, you should have a legal case for pursuing damages against them. (I am not a lawyer so please seek out legal advice from a qualified lawyer).
Now let’s focus on a less serious situation. Your job is a grind. Or boring. Or your manager sucks. The work is awful.
For whatever reason, you hate your job and want out. But you have student loans.
What should you do?
I’m going to state something obvious that I’m sure you’ve thought about: it’s easier to find a job when you are currently employed.
If you are willing to stay with your employer while searching for another job, use your disdain of your current job as motivation to take action. Update your resume, browse job openings, apply for open positions, and connect with your network. This is likely the right course of action if you have no emergency fund or a limited one, since leaving your job without another one lined up will likely result in you falling behind on bills and taking on credit card debt.
If you do have an emergency fund you will have to weigh whether or not quitting your job before finding a new one is worth it. The bigger an emergency fund you have, the better. Six months or more would be an ideal amount, but you could get by on less (and trust me, I know how difficult it is to build even a one-month emergency fund). If the economy was in a downturn I would advocate against quitting your current job before finding a new one, but with the economy being hot there is a higher likelihood you can find gainful employment relatively quickly. Regardless, you should have a good idea of how difficult this will be before you quit your current job.
In Student Loan Solution we talk about an emergency fund as an F off Fund. Having money set aside will allow you to not be reliant on anyone financially, and to tell people (like an abusive boss) to “F Off” if that’s what they deserve to hear (it’s up to you whether you say it in your head or out loud!).
If you don’t have an emergency fund, there is no better time to start than now. Even $100 a month can be beneficial, and any amount is better than $0.
This post isn’t just about emergency funds though. The underlying issue is student loans and how that makes borrowers feel stuck in their current jobs and careers, unsure how they will get out.
So let’s move into a discussion on student loans specifically.
What Does Your Student Loan Situation Look Like?
The type of loans you have will dictate what options are available for you. If you have never dropped all your student loan information into a spreadsheet, now is the time. Download our free student loan spreadsheet and follow the directions to populate all the details of your private and federal student loans.
Let’s start by looking at private loans and then federal ones.
Private Student Loans
Private student loans are becoming more common each year. One reason for this is how expensive college has become, which drives borrowers to supplement their federal student loans with private ones. The other reason is the millions and millions that have been spent marketing student loan refinance products.
With your private student loans you have a couple different options to make your payment a more reasonable amount:
- Work with your current lender – See if your current lender is willing to restructure your loan, either with a lower interest rate, longer payback period, or both.
- Refinance with another company – There are a ton of banks today offering student loan refinancing, so if your current lender isn’t willing to give you a better loan you can look elsewhere. Credible is a company that gives you free rate quotes from multiple companies. If you use my link and end up refinancing your student loans, you will get a $300 cash bonus if you refinance less than $100k and a $750 cash bonus if you refinance more than $100k. (All bonus payments are by gift card. See terms.)
Private student loans don’t have nearly as many options as federal student loans, but the one big benefit is that you can refinance over and over again if you find a better offer. I recommend people look every 6-12 months to see what sort of rates they will get from lenders. If you get a better interest rate you can ditch your current lender for the better loan.
Federal Student Loans
Federal student loans come with a lot of benefits, which is why I start with a word of caution on refinancing federal student loans. Once you refinance a federal student loan your federal loan no longer exists; you now have a private student loan. That means you no longer have access to benefits like income-driven repayment or opportunities for loan forgiveness, so take a pause before refinancing federal loans (private loans already don’t have these benefits, so feel free to refinance). Especially if you are struggling financially you shouldn’t consider refinancing your federal student loans.
With that in mind, here are a couple things you should look into:
- Income-driven repayment plans – There are four different income-driven repayment plans, each one with slightly different features. What they do have in common is they max out your minimum required monthly payment at 10-20% of your adjusted gross income (AGI), which can be found on your tax return. You can read more about the income-driven repayment plans here.
- Student loan forgiveness – There are two primary forms of student loan forgiveness: income-driven loan forgiveness and Public Service Loan Forgiveness (PSLF). Income-driven repayment works like this: make 20-25 years of payments on an income-driven repayment plan and your remaining loans (and accrued interest) will be discharged. You will have to pay taxes on the amount forgiven. For example if you had $100,000 forgiven, you’ll have to pay taxes on that amount as if it was income you earned.
PSLF is the other major type of loan forgiveness. It’s received bad press, but fears about the program are overblown and more and more people will be granted PSLF over time. PSLF is the best type of loan forgiveness because it only requires 120 qualified monthly payments and you aren’t taxed on the amount that you are forgiven. It can be a difficult program to navigate, but for some borrowers it can literally result in a six-figure swing in their net worth. You can read more about PSLF here. I also wrote a post that shared tips for maximizing PSLF.
By strategically taking advantage of things like income-driven repayment, you can increase cash flow which allows you focus on goals like building a healthy emergency fund. As I mentioned earlier, it’s a lot easier to leave a job you hate when you cash in the bank than if you have no savings.
What Does the Rest of your Finances Look Like?
Your student loans are important to address, but it’s only a piece of your finances. There are other things to think about such as:
- Credit Card Debt – If you have credit card debt it should be prioritized over your student loan debt and you should be even more motivated to move onto an income-driven repayment plan and/or work towards getting your private student loans down to a more reasonable monthly payment. If your credit is good enough you may be able to refinance your credit card debt into a personal loan with a lower interest rate. Another option is a 0% APR transfer card, where you won’t be charged interest for the first 12-18 months. If you do take this approach you have to be sure you are 100% committed to paying down the debt and not simply letting it sit and/or increasing your credit car debt, which is common.
- Cash Flow – To track my income and expenses, I use Tiller, an automated tool that pulls all your credit card and bank information into one spreadsheet. I use it in tandem with an automated budget spreadsheet in Excel to keep tabs on how much we are spending on things like restaurants, auto insurance, and other spend categories. Ultimately I am able to see whether or not we have positive cash flow.
Key to understanding your cash flow is knowing how much you spend, and on what. Use this as an opportunity to ask yourself whether you are spending your money on things you care about? If you value your daily Starbucks, that’s something that you should keep in your budget. If you don’t care about your car then you should find the best value (I fall in this boat and have been very happy with my inexpensive but reliable Kia Spectra). Only you can decide what you should and shouldn’t spend money on, but take this as an opportunity to prioritize your spending.
One note on student loans specifically: moving your federal student loans onto an income-driven repayment plan can have huge positive implications for your cash flow. For example, a therapist with an AGI of $40k and $100k+ of student loans could see their required monthly payment go from more than $900 on a standard ten-year repayment plan to less than $150 a month on an income-driven repayment plan. That’s a lot of extra cash each month that can be used to transform the stability of your financial life.
- Credit Score – We talked a lot about refinancing, and nothing impacts your ability to refinance at the best interest rates more than your credit score. Virtually every credit card provides you access to a free credit score.
If your credit score isn’t as high as you’d like (650 to 699 is good, 700 to 749 is very good, and 750 and up is excellent), don’t worry. There are plenty of practical things you can do to start improving your score. Here’s a post about a fellow blogger who improved their credit score 150+ points in just 8 months.
You don’t have to wait until your student loans are gone to start living a life you love.
I repeat: You don’t have to wait until your student loans are gone to start living a life you love!
Some borrowers will benefit from loan forgiveness, and for them paying off their loans either won’t be possible (think of a social worker making $40k a year with $160k student loan balance) or would cost them tens of thousands that could have been forgiven. Moving from a hopeless (and to be frank, bad) student loan repayment strategy to one that makes sense can be life-changing. For some that will be a strategy that involves pursuing student loan forgiveness, for others it will look different.
For various reasons, federal student loan debt is the best type of debt because of the numerous options it gives you for income-driven repayment and loan forgiveness. Private student loan debt is tougher, but there are still options for managing it through refinancing to a lower interest rate and/or extending the payment terms.
If you’re feeling stuck, don’t avoid your personal finances. I have people who are very close to me who didn’t read my blog for years because they were afraid to confront their finances. The sooner you do, the sooner you can take control of your money and your financial life.
Don’t let student loans keep you in a job you hate. You don’t have to be miserable because of your student loans.
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