Tripod Home | New | TriTeca | Work/Money | Politics/Community | Living/Travel | Planet T | Daily Scoop
|
WORK & MONEY
SURVIVING
STUDENT
LOANS
Published August 5, 1996
Other Columns by Ken Kurson
|
My dad used to tell this joke: A natty gentleman, emerging from the theater, is approached by a panhandler. "Spare a dollar, mister?" slurs the latter. The gallant man puffs up his chest, and pompously recites, "'Neither a borrower nor a lender be.' -- William Shakespeare." The moocher quickly replies, "Oh, yeah? Well 'Fuck You.' -- David Mamet." In these enlightened times, we no longer have debtor's prisons. But they've been replaced by dungeons from which escape is equally difficult: student loans. Consider the fate of Steve the attorney.
Steve borrowed $80,000 from a variety of lenders to put himself through college and law school. After graduation, he was lucky enough to find a job doing work he considered noble -- defending the rights of workers -- at a starting salary of $35 grand, higher than the average public interest lawyer can expect. (The glut of lawyers you've been hearing about has driven salaries down over the past few years. In fact the weekly median pay for all attorneys dropped about $50 from 1993 to 1994, with the average starting salary ranging from $58,942 for a private practice associate to $20,000 for a public defender. And don't let that high end seduce you: At 80 hours a week, it's a little better than 14 bucks an hour and you gotta spend most of that on suits and amphetamines.)
|
| Many loans are an unrealistically heavy burden. | Student loans typically charge 8 percent interest over a standard 10-year repayment schedule. This scheme means that a little more than 39 percent of the money you pay over that decade goes to interest. For Steve, that would boil down to monthly payments of $1,100 -- about half his after-tax paycheck. It's an unrealistically heavy burden, and one that would see him pay a whopping total of $132,000 for the privilege of defending union Joes and wrongly fired Joannes.
While it's always best to stick to the schedule (or even pay earlier), there are options, though none is very appealing. Steve chose to defer his payments on the lower-interest federal student loan, while paying $500 per month to the most usurious private lender. It's hardly a perfect solution, as the interest on the government loan continues to accrue as he works down the other but it's the best he can do. Another option is to consolidate your loans to a single lender. Not only is it more convenient, but sometimes you can negotiate a rate that is less than the average of the combined outstanding loans because the consolidator is eager to tap into the government's reliable payers. Another option is lower your monthly payment by increasing the repayment period. Let's say you owe $20,000 at 8 percent. Increasing your repayment period to 15 years from 10 years would reduce your monthly payment to $192 from $242. But remember, the magic of compound interest cuts both ways: The total amount you'll repay leaps from $29,040 to $34,408 if you take those extra five years. But you can always pay more than the monthly minimum once you begin earning more.
|
| There are options, though none is very appealing. |
Other tips:
Ken Kurson, 27, writes the "Advocate" column for Worth magazine and appears weekly on CNNfn. His personal finance 'zine, "GREEN: PERSONAL FINANCE FOR THE UNASHAMED," is published quarterly and is available for $3 an issue or $10 for a year's subscription. For more information or to subscribe, write GREEN at 245 8th Avenue, Suite 286, New York, NY, 10011.
© 1996 Ken Kurson, All Rights Reserved
|
Map | Search | Help | Send Us Comments
