Thanks to you, readers, I just completed and submitted my PSLF application (<<<does that make anyone else think pumpkin spice latte every time you read it? Just me? Cool, cool.)
I feel like I’m fairly on-top of my student loan stuff, but this just goes to show the benefit of the community here because I fully had no idea that I could submit a request to have past payments count toward the PSLF program.
What is the PSLF program?
For anyone unfamiliar, this is a program established by the feds/US Department of Education to forgive student loans for those who work in certain public service industries. I work at a public university and that “counts” for purposes of this program.
The PSLF program allows forgiveness on loans after the borrower has made 120 qualifying payments on eligible loans while working full-time in qualifying employment. I know there were some pandemic-related exceptions, as well (e.g., I believe months counted with no payment made during the interest pause period).
Why I didn’t apply for PSLF years ago
I never applied for the PSLF program when I first started working full-time. At the time, the PSLF program was a mess (perhaps it still is? I haven’t kept abreast of this). I knew multiple people who believed they were in the PSLF program and faithfully made 10 years worth of on-time payments only to have the rug pulled out from under them. There were many excuses (e.g., they didn’t have a qualifying loan, they weren’t officially enrolled in the program, they had made some other such clerical error) but the bottom line is these people I knew – friends and colleagues – were really counting on this loan forgiveness that did not in fact pan out.
I never planned to be in debt long enough to take advantage of the PSLF program. 120 qualifying payments?! That’s ten years! Absolutely not – no, thanks. Also, I feel a sense of responsibility to pay for my loans. I signed to take these loans on. I owe the money. I need to pay it back. It was as simple as that.
All of these are reasons why I never applied for PSLF to begin with.
Why apply for PSLF now?
I started my full-time job in 2015. That means I’ve been working for 7 years in this field. Why apply for PSLF now? What changed?
First, my life changed. Sure, if everything had gone to plan, I would be totally debt-free (minus mortgage) by now. Twice over, in fact. My initial debt-free projections were for the year 2020, and my revised projection was for June 2022. Both dates have come and gone and I’m still in debt. My divorce and associated legal fees, multiple moves (first out of my marital home, then between rentals for a couple years, and finally to the home my new-husband and I purchased together), a new-to-me car, inflation…..yeah, I’ve still got debt.
Changing philosophies and world views
More philosophically, my view of student loan forgiveness has changed. I see student loans like the next housing market crash. Lenders were lending money to people who had no right to be given such huge loans. When I graduated, I had over $100,000 worth of student loans! That’s an insane amount of money, and though it allowed me to earn a higher-level degree I need for my current job, I think there are some irresponsible lending practices going on. If we really wanted to get into the nitty gritty, I’d tell you about how higher ed, in general, is broken. College used to cost $3,800 the year I was born, and now it costs around $12,000/year. And that’s just undergrad. I’ll stop myself from going on a longer rant about this topic.
Back to PSLF – I’ve been paying faithfully since I graduated college in 2013. For most of that time, my student loan payment was the single largest payment I owed. It cost more than my mortgage on my first home. We were STRUGGLING and even with making $1,000+/month payments, my loan balances were growing. They were getting bigger because the interest, alone, cost more than that. Long-term readers may remember the days back in 2014/2015 when I was focusing on other debts first (e.g., medical debt, car debt, tax debt) and still paying a HUGE SUM toward student loans, only to keep watching them grow.
I’m no economist. I’m no tax pro. I love a good budget spreadsheet, but I’m not really a pro at any of this stuff. And yet, it doesn’t take a rocket scientist to see this as a major problem. It’s not right. Predatory lending, overextension of loans, and such high interest rates that borrowers can never get out from under them (I had student loans with 8.5% interest!!!). All this to say, I think I’ve changed how I feel. I still feel like if you borrow money, you should pay it back. But student loans…the interest they generate…they’re a different beast entirely. It’s not that simple. Feel free to disagree, but I feel like I’ve paid my debt back. Both through actual monetary payments, and also through the public service I’ve given the state of Arizona.
What’s next with my loan forgiveness?
I’m enrolling in PSLF. In the meantime, I’m going to keep putting some money aside in a separate account for student loans (rather than paying toward them directly, I’m saving the money). But I’m going to focus more attention on my car loan first. It will take me likely a year and a half to pay it off. Then I can turn back to student loans. Maybe I’ll still pay them off before the PSLF would come through. I’ve got 3 more years to go before I’d qualify for forgiveness. But I at least want to be “in the system.” I want my payments and past history to count toward the 120 qualifying payments. And when I hit that 120 payment-mark if I still have outstanding student loan debt, I’ll be more than happy to graciously accept the debt-forgiveness.
Just one little “funny” to leave with you all. When it came to completing my PSLF application forms, the Dept of Ed is living in the dark-ages and wants the forms to be snail-mailed in. True to form (the Dept of Ed, known for being a cluster*), there were two totally different addresses printed in the application materials. One was part of the application itself. The other address was on the cover page, containing all the instructions of what to do. Can’t make this stuff up, folks. Totally different addresses in totally different states and different fax numbers, to boot!
Although I assume the former is the correct address (the one on the application, itself), I went ahead and printed the application out twice and mailed one to each address just-in-case. I’m not trying to mess this up due to some clerical error and the clock is ticking. All applications are due within the next couple of months. No time to spare! So I’m crossing all my t’s and dotting my i’s and hopefully everything is in order to be enrolled into the program and have my old payments grandfathered into the plan.
Thank you, as always, for your comments, advice, and suggestions!
I want to crowdsource suggestions of some good books related to getting out of debt. Also, suggestions on investing and/or growing money would be of interest. I’ve read all the original Dave Ramsey stuff. I used to follow him religiously but have evolved and have a little bit broader world-view now. I’d love to dig into some other stuff for funsies.
The Financial Independence Retire Early movement (FIRE for short) has become pretty popular over the past few years, and it’s easy to see why. Who wouldn’t want to leave the workforce years early with a comfortable nest egg and spend the rest of their days traveling and pursuing their passions?
Debt and FIRE may seem like they don’t mix. After all, it’s hard to save and invest a large chunk of your income while you’re contending with tens of thousands of dollars worth of debt. For a while, I was discouraged and felt like I’d never achieve FIRE if I wanted to become debt-free. I considered giving up my FIRE goals and just focusing on paying off my mortgage and retiring at 67.
But you actually need a lot less money than you’d think to achieve certain types of financial independence—more on that later. I’d even argue that people who have the discipline to pay off a significant amount of debt are in a better position to FIRE than the general population.
Here’s why I think it’s possible to achieve financial independence even if you’re in debt now. I’ll also give you an overview of my FIRE plans as an example.
Why People Who Have Paid Off Debt Are in a Good Position to FIRE
I think that paying off debt is great training for FIRE because it teaches you how to delay gratification. Those of us who are committed to paying off debt know how to live modestly and work hard toward a goal that often feels far away. We’ve learned how to cut down on discretionary spending and skip eating out and vacations for years at a time to accelerate our financial progress.
That mindset is a huge asset when it comes to achieving FIRE. Once your debt is paid off, you’ll be able to funnel all the money that used to go toward loans into your investment accounts. If you maintain a high savings rate by living like you’re still in debt, you may be able to achieve FIRE even with a later start. It also helps if you’re able to contribute to your 401K while you’re paying off debt, which is a smart move even if you’re not aiming for early retirement. Investing just a couple hundred dollars a month during your debt payoff journey will shave years off your FIRE date.
My FIRE Plans
You’ve probably heard of the standard version of FIRE, which involves saving a large percentage of your income (usually 50% or more) to build enough wealth to retire early. But there are actually a few different types of FIRE you may not know about that are easier to achieve.
Lean FIRE is a type of financial independence that involves living on less than $40,000 per year. If you can get your average annual spending down to $20,000 or $30,000 (or supplement your investments with a part-time job), you can retire with less than $1 million in today’s dollars.
Coast FIRE is even more achievable. People who have reached Coast FIRE have invested enough money in their 401K to retire at regular retirement age without making any further contributions. This means that they only have to cover their living expenses until age 67, which gives them a lot more career flexibility and ability to take risks.
This is the type of FIRE that I’m currently aiming for because it’s easier to balance with my debt payoff goals. Trying to save 50% of my income and pay off my mortgage at the same time just isn’t realistic. But to achieve Coast FIRE in my late thirties or early forties, I only need to invest about $550 per month, which is completely doable even while paying off my mortgage. If you want to figure out how much you need to invest each month to achieve Coast FIRE, play around with this awesome calculator.
Based on my early mortgage payoff schedule, I’ll be debt-free around the same time I achieve Coast FIRE. Getting rid of my mortgage will lower my expenses significantly. Because I won’t need a lot of income to cover my living costs, I’ll have a lot more financial freedom and career flexibility in my forties if everything goes to plan.
FIRE Is Still Possible
If you have early retirement dreams, you don’t have to give up on them just because you started life with student loans or got into credit card debt. I encourage you to play around with some FIRE calculators and see what might be possible if you save diligently once you get out of debt!
Do you want to retire early? If so, what kind of FIRE are you aiming for? Let me know in the comments section below!
Vicky Monroe is a freelance personal finance and lifestyle writer. When she’s not busy writing about her favorite money saving hacks or tinkering with her budget spreadsheets, she likes to travel, garden, and cook healthy vegetarian meals.