I read a post last night shared by a couple of behavioral finance guys. It pissed me off. I get annoyed when people who seem like industry experts share something that makes absolutely no sense whatsoever when you give it more than a moment’s thought. Want to read the post, it’s right here: How one man is paying off over 100K in student loan debt.
Here’s a couple of zingers for you:
I graduated with $104,000 in student debt, consisting of 16 different loans from four servicers. I currently have about $80,000 left and my goal is to pay it off by the end of this year.
How he plans to pay it off?
I cut unnecessary expenses — including cable, a car, and a gym membership — and eventually moved from New York City to Texas, which has a lower cost of living.
He goes on to say:
The most important thing I did was focus on increasing my income over this time period by working more hours, freelancing, and even listing my apartment on Airbnb.
So why am I mad? Well, for one I’m just a belligerent old bastard. But really, what I see here is a guy who has no clue about money, he found out his loans were delinquent when his parents told him. He then goes on to think he can clear debt by cutting cable and gym memberships.. and really, who the heck has a car in NYC?
The income? Who knows what the dude makes, it doesn’t show here. The point is that if you have enough income to clear $80K of debt in a year, you have a shit ton of money coming in. Why would moving from NY to Texas factor into this? Let’s say you’re renting your own place in NYC, we’re talking $2000 per month on the low end. If you share, maybe $600. What is the rent level in Texas, $1000? Who knows.. but the point being if you add up all that junk, the cutting of the rent, the cable, the gym, all that wrapped up, you are looking at what, $10K? How much does it cost to move? At least 1, maybe $2K. So let’s say you made a net of $8K per year savings by upending your life.
What gives?
You’re trying to tell me in this post that the dude can clear $72K, after tax, and after living expenses from freelancing and renting out his cheaper, inferior priced (for subletting) Texas pad on Airbnb? Meaning he’d be out of debt in 13 months if he kept on doing what he was doing? But he has to ‘turn his life around’ in order to do it in 12 months?
What the heck people!
Why am I mad, really?
Because this is the farce that is portrayed by finance folk and the frugal. They think that if you cut out silly shit you’ll be able to make sweeping lifestyle changes. What they are really doing though, is hiding from the stark reality that they got in debt by burn rates way higher than the rent spread between two cities, and way more than what it costs to have cable vs netflix. This post screams a lack of financial education, followed by further poor choices.
Everything has a price
If you are in serious debt, of course there is some upside from being a bit frugal. But what really matters is restructuring your debt in order to reduce interest payments, and even more importantly than this, boosting your earn rate upwards. If you decide to cut off all your expenses you also cut of earn potential. Simply put, in this case, moving to a cheaper town can reduce your earning capabilities, and you’ll find that you’ve amassed huge debt and have cut off options to get that sorted.
The punishment must fit the crime. If you need to go on an outflow diet, it has to be relative to your actual needs. Cutting cable and moving to the woods and thinking you’re on the fast track to FIRE is a recipe for disaster.
There’s also the entire issue of someone amassing $80K in debt for what–an undergrad education?
Did he not work at all during college? Did he not qualify for grants or scholarships of any kind? Let’s leave the fact that the cost of higher education in this country is a sin, and that the ability of people at a very young age to rack up horrendous debt just to attend even a land grant university is appalling.
But where were his parents when he decided that THIS was how he wanted to get an education–by borrowing a total of $80K? Did they ever say, “Son, we’re so sorry we can’t pay for your college education. But what do you think about starting out at community college? We could help a little, and you could live at home for the first two years, to save that cost.”
When my kids were young, I was holding on by my fingernails. A college fund for them was a distant thought, way behind feeding, clothing and helping them deal with the issues of an unhealthy father. By the time they got to college age, I could help them buy their books.
My oldest fell in love with a liberal arts college in Oregon. So did I, frankly. And she had the smarts, and the grades, to get considerable assistance. But, heartbroken for her, I told her that she needed to think hard about whether she wanted to graduate from college with $40-50K in debt–the extra cost at that time.
She attended the University of MN. One of her brothers started at community college, then established residency in TX, and graduated summa from UT at Austin.
The truth is that higher education is extremely expensive in this country, even if you do attend a land grant university. But parents need to teach their kids that, in the absence of unlimited funds, choices must be made, in order to protect them from what happened to this idiot.
Well, recovery begins with a commitment. Moving from NYC to Texas was dumb, you can just move across the river (either one) to save on rent. But the good thing is that he’s woken up. He might not be able to pay off in a year by cutting cable, but freelancing and AirBNB are steps in the right direction.
Now, his co-signing parents who let the loans slip into default… I will refrain from commenting on that.
Andy, his parents may or may not have cosigned. If you are in default on a loan, the lenders will contact anyone and everyone you know, trying to either find you, or to shame you into paying.
This, of course, whether or not it’s actually legal to contact them I got a call one time, from a “friend” of my neighbor’s, who claimed to be trying to get in contact with her. It was, I’m certain, a collector.
MickiSue, he said they had cosigned in the article.
Forgetting all other issues, if someone is delinquent on his/her loans, he/she can usually negotiate a settlement for approximately half of what is owed.
Did I stumble into a church? Whole lot of sermonizing and judging going on in both the posting and comments. At least Matt fessed up to having s bout of belligerence!
Why is it that conversations about debt tend to bring out the worst in folks?
Yep, that’s fair. It’s a bit of a rant by me, and it’s not so much about the guy in question but how the ideas of sudden frugality will solve problems like this. It bothers me because a lot of the finance guys push this, and it feels like a crash diet approach, unhealthy and I’ll thought out.