This is a multi-part post series called My Story, where I talk about how I got to where I am today through the lens of finances. Make sure you start from the beginning to get the full story.
Sometimes, there comes a moment when you realize your true financial situation. A financial awakening so to speak. For most people, it’s that moment when you think, “Wow. What happened?” The Great Audit was mine.
FIGURING OUT HOW TO PAY FOR COLLEGE
As I mentioned in my decision to go to an expensive private university, I couldn’t afford to pay for college on my own. My family believed school should be considered your first job, so I didn’t get a job throughout high school. I didn’t have much in terms of savings, and my credit history was barely existent.
I earned a large scholarship due to my academic merit, but it wasn’t a full ride. My family had paid for my education up to the end of high school, but they could not help me pay the remaining balance. The government, however, considered my mother “rich enough” to pay for at least part of my education. I didn’t receive as much aid as I would have liked from my FAFSA application.
I had to take out a combination of subsidized, unsubsidized, and federal loans, as well as a private loan from the university. It still wasn’t enough. My credit history was almost non-existent, so most other loans were not available to me. I could only get the remaining loans I needed with a cosigner, through the ParentPlus loan.
MANAGING THE DEBT
Taking the ParentPlus loan was a significant decision. My mother said she was happy to help me since she couldn’t afford to pay for college herself, but I knew she had debt of her own. Putting her name on the dotted line meant her finances, specifically her credit, would be greatly affected. I kept telling her that I was good for paying it off as soon as I could, but I know it was yet another source of stress for her.
My mother was integral to tracking and managing my college debt. The weight of going to such a costly school had not yet sunk in for me. I was keeping all the receipts from the servicers, but she was the one to initially organize them and ensure everything was being properly distributed. I was still being an ignorant kid. It hadn’t hit me that I was entering adulthood and these kinds of things were important.
Also significant was our decision to take out more loans than I needed. My ability to pay tuition was dependent on financial aid and loans. If any of my scholarships or grants disappeared, especially considering the political climate, I would no longer be able to attend. I took out approximately $5,000 more every year, and saved it in a high yield savings account. We hoped I could use the funds to pay for my final semester in lieu of taking out more loans.
GETTING A JOB
I searched for an internship related to my college major as soon as I was able. I wanted to start earning money to counteract the loans. My future marketability also depended on getting relevant experience. I wouldn’t be able to get the well paying job I needed to pay off all these loans if I didn’t start building my resume now.
I wanted to save as much of my paycheck as possible to pay for the loans. However, it was my first ever paying job. And as we established, adult realizations hadn’t hit me yet. The novelty of having money I earned and controlled was intoxicating. I spent much more than I should have on useless stuff. The worst of the bad purchase decisions being a new car. I only started getting serious about my original objective to pay off my loans when my undergraduate graduation date started to approach.
DECIDING TO BITE THE BULLET
I avoided calculating how much debt I would graduate with during the final semesters of my undergraduate degree. I continued to update the spreadsheet my mother had created when I started college, but I didn’t go any further. It was only when the promise of a full time job approached, in my final semester of graduate school, that I started taking an interest in my finances.
I had switched to another internship when I started my graduate degree. This internship paid more, and the work was directly related to structural engineering. The culture was different, but I was already getting hints of being hired as a full-time worker. The promise of a regular, and substantial, paycheck motivated me to calculate my net worth.
That…and I didn’t want to work on an assignment due for a class…I happened to have the spreadsheet on my computer and I was THAT bored. But, hey, I was planning on doing it eventually anyway.
THE COLLEGE BREAKDOWN
I started by doing a full audit of all the charges from college. Every tuition, fee, receipt, and parking pass was checked. Below is directly from my original spreadsheet:
The bar chart illustrates the cost of my college years. I spent 8 semesters pursuing an undergraduate degree, and 3 semesters pursuing a graduate degree. Bars below the $0 mark on the vertical axis illustrate my college expenses. Bars above the $0 mark on the vertical axis illustrate how I funded my college expenses.
- The cost for my 4 years of undergraduate and 1.5 years of graduate education, including fees, parking, school supplies, and books, came to $172,015.55.
- I had earned $76,029.90 in scholarships and grants. So my academic merit and involvement had paid for about 44% of my education.
- I had taken out a combination of Federal Perkins, Federal Subsidized, Federal Unsubsidized, and Parent Plus loans to fund the remainder of my education. I technically only needed to borrow $95,986.55, but I took out $113,519.00. A total of $17,532.45 (or over 18%) more than I needed.
- I had paid some cash towards my second to last semester of graduate school, and all cash for my final semester. I also made interest payments on my loans while I was attending college to keep the compounding interest in check (not shown on the chart). Overall, I had paid $40,734.75 towards my education while attending college.
THE GREAT AUDIT
With the exception of the interest payments, I had not logged into my loan servicer to see my outstanding balance. Seeing the initial numbers from my college breakdown made me happy enough to finish my semester without any more financial analysis. I figured I couldn’t have that much student debt left after already paying $40,000 towards my education. Granted $11,609.00 went towards paying cash for my final semesters. But I imagined I would be able to pay off the rest of my debt in no time. With my promised salary, I dreamed of being able to pay the rest off in a year, maybe two.
A couple days before returning to work after a negotiated vacation, I decided to log into my loan servicer account. It was time I started tending to adult responsibilities.
The page loaded and…I had over $103,000 of outstanding student loan debt.
I was confused. How was it so much more?
I realized I had forgot about the interest rates on the various loans. They ranged from 2.5% to as high as 7.9%. Most of the larger balances had the 7.9% interest rate.
I panicked. I looked into all my savings, and my retirement accounts. And I came up with the following. My first net worth calculation:
- I had $32,843.25 in assets, most of which was an emergency semester fund I no longer needed.
- I had $114,849.48 in liabilities. $103,528.00 in student loans, and the rest in a car loan and some small credit card charges.
- My net worth was -$82,006.23.
MAKING A PROMISE
Seeing the truth of what my decisions had done made me sick. Even if I liquidated all my savings and retirement accounts, it wouldn’t have made a difference.
I could have been paralyzed by the panic, but I decided to take action. I made a promise to myself to get out of debt, and stay out of it. Thinking about my mistakes wasn’t going to help me. The only way to help myself was to move forward and make the changes necessary to reach my goals.
I revived my financial knowledge, and scoured the internet for other tips to pay off debt fast. Everything I found initially was shallow. It was a collection of horrible tips teaching frivolous people how to save $5 a month. I wanted to pay my debt off faster than that. Much faster. In my search, I found the financial independence movement…
Next time, we’ll see where I am now. Nearly two years later.
Have you had a financial awakening moment yet? Have you tried completing a Great Audit of your own? How did you feel when you finally figured out your situation? Let me know in the comments?