Not To Be Trusted With Knives

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And Then There Was One

A long, long time ago1, an intrepid young graduate (i.e., me) was buried under a mountain of student debt. More than $71,000 of student debt, in fact. Said debt was originally in the form of no fewer than 15 separate loan accounts, which were then consolidated into 3. And for the last 5 years I have been pouring insane amounts of money into paying off those mofos.

My strategy has been to set a fairly high monthly amount that I pay, focusing on the highest interest loans first. Every time I got a raise, I upped my monthly payment by the after-tax amount of that raise; the idea here is that since I’m not used to having that money, I won’t even notice it missing. Similarly, any extra money I managed to make (e.g., from freelance work and teaching) was made as lump sum payments onto my loans2.

My first taste of victory came in June 2011.

student loan 1 of 3 - done!The first of my 3 loans was done! Huzzah!

And then, just days ago, this happened:

zero balance

Student loan #2 down. And then there was one. Just one student loan left to go.

At this very moment, that student loan sits at about $5,400. At my current rate of $1,800 per month, that would take me three more months.

However. I happened to come into some money recently. By which I mean my mom generously gave me some. And as soon as the cheque clears3, my student loans will. be. done. Just a few days past the 5 year mark from when I started paying them off, I will have paid off more than $71,000 plus interest. In case you haven’t noticed, that is ABSOLUTELY INSANE.

Guess I’m going to have to figure out what to do with the money previously allotted to “student loan payments” in my monthly budget.

  1. i.e., 5 years ago []
  2. With a few bucks of that extra money being used for things like laser eye surgery and braces. Because you have to have some balance in your life, right? []
  3. Because apparently it takes a week for Vancity to talk to the Royal Bank. I believe they communicate by the Pony Express. Or maybe messenger pigeon. []

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Since Five Years Is A Long Time To Not Be A Student

Hey, remember that time I said that a government agency wants to give me bucketloads of money so that I can get an MBA and that I needed to write the GMAT and then apply to the program and then hopefully I’d actually get in so I can have the aforementioned bucketloads of money? Yeah, that all happened. Schools starts for me in January.

Now, before you all going telling me (again) that I’m a Crazyface McGee, it’s merely an intensive 28-month, part-time program that I’ll do while still working full-time and that costs $41K+. You may now all call me crazy. But only half crazy, really, because of the aforementioned bucketloads of money.

Stack O'Money!
Not the actual pile of money I’ll be getting. Mine will be Canadian.

After the crushing level of student debt I incurred to get my first three degrees, I swore I’d never borrow another penny for education again, but when I found out about the scholarship to do an MBA, it was really too good of an opportunity to pass up. Especially given that I actually won the scholarship!

I just found out about my offer of admission last week, celebrated on Friday with a fine wine and a three-year-old cheese, both of which I picked up in Oregon in the summer and have been saving for just such a momentous occasion, and paid my tuition fee deposit yesterday. I’ve been doing a lot of thinking about what this time commitment will mean for my life and a lot of planning of how I’ll get myself organized to juggle my life, work, and school, but the reality of the situation is really starting to sink in now. Expect some think-y blog postings about such topics over the next little while – please bear with me! Or, you know, tell me I’m crazy.

Image Credit: Posted by docwonder on Flickr.

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$65

Two of the items on my list of 101 things to do in 1001 days are:

56. save $500 in coins

57. deposit that $500 worth of coins into my 40th birthday savings account

I hit a bit of a snag in this plan in that when I moved last year, I moved into a place with no laundry facilities, so I had to start going to the dreaded laundromat, meaning that I needed my loonies and quarters for laundry. When you take loonies and quarters out of the mix, it really becomes difficult to save up much in the way of coins! But I decided to roll up all the dimes, nickels and pennies that I had in my coin jar, just to see what I had:

Rolled coins

That’s $65 worth of coinage, which, while not $500, isn’t too terrible.

The next step was to deposit this money into my 40th birthday savings account. But, as we all know, I decided to divert my 40th birthday savings account money into my dreaded students loans in my valiant attempt to be able to throw a “my student loan debt is all paid off” party by the end of next summer. So that $65 went to student loan paying-off-ness.

$65 closer to freedom.

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Student Loans – Update and a Plan

vipezz 153As you may have seen my complain about from time to time here on NTBTWK, I wracked up a crazy amount of student debt while going through school. $71,504 to be exact. Now, when you consider that I was in post-secondary education for 11 years, it’s not actually that much – a mere $6,500 per year on average1 or $5,500 per letter I get to put after my name. And, as you’ve also seen me talk about here from time to time, I’m paying off my student loans as aggressively as I can, while still trying to have some sort of balance in my life2. I’m making sacrifices – not doing nearly as much travel as I would like, and renting a place in Surrey, where it’s much cheaper than Vancouver – as I’m putting the money I’m not spending on those things towards my student loans instead. The sooner I get them paid off, the sooner I don’t have to make giant student loan payments every month. Short-term pain for long-term gain, right?

Well, I did some number crunching on the weekend and I think I have a plan in place that means that I can have my student loans paid off by the end of next summer! When I first started paying off my loans, the loans were set up such that it would take me 9.5 years to pay off. That was April 2007, which means I was scheduled to have them paid off by October 2016! A combination of falling interest rates and me putting extra money that I have made towards the loans sure looks like it’s paying off!

At the moment, I have $24,000 left to pay. I currently pay $1,400 per month, meaning that I’ll pay $16,800 in a year. This, of course, leaves $7,200, plus all the interest on my balance3, unaccounted for, if I wanted to have my student loans paid off in a year. Fortunately, I have a some contract work that I’m doing and I figure that I can put all of the after-tax amount I make onto my students loans. But even that isn’t quite enough, so I’ve decided to do something drastic.

Ages ago, I started saving for a trip for my 40th birthday. Every two weeks, ~$25 is automatically transferred into a separate account that I’ve been using to save up for this trip. The idea, of course, is that you don’t really even notice $25 missing and then all this money piles up. Well, I can verify that such a system works, as I really have mostly forgotten that that money was sitting there. Until, that is, I realized how close I was to being within a year of my student loan freedom date, and then, all of the sudden, I noticed this $2,700 sitting in my birthday trip account that looked like something that I could really put to better use. I mean, I’m still a good 5.5 years away from my 40th birthday – that’s plenty of time to save! So I made the executive decision that I will take that $2,700 and I will give it to the student loan peeps and I will be that much closer to having this student loan monkey off my back. And then we will party.

Image Credit: Posted by vipez on Flickr.

  1. And that’s pretty much tuition fees and books most years. Jobs and scholarships were added into the mix so I could do things like eat food and not be homeless. []
  2. Some money to student loans, some money for laser eye surgery. Some money to student loans, some money for braces. []
  3. Interest on my student loans is currently 5.5%, except for a small chunk that is 4.5% []

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Student Loan Update

IMG_1005So, I made a really big lump sum payment on my student loans this month. Combining my tax return along with the amount of money I made from teaching two courses (after I used some of it to pay for my braces) meant I could make a $9,000 payment on my student loans. $9,000! Making the amount that I currently owe on my student loans a mere $26,500!

This puts me well within reach of achieving my goal of cutting my student loans in half by the end of 2011 compared to the end of 2010 – i.e., reaching the $20,000 mark (compared to the $40,000 I owed at the end of 2010). Also, since I got a raise, I upped my monthly payments to $1300/month.

Man, when I finally get these suckers paid off I am going to throw one hell of a kickass party!

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Real Estate – Ugh

So lately I’ve been reading a fair bit about the real estate market. As a kid, I was brought up to believe that when you grow up, you buy a house – after all, it makes more sense for the money you spend on housing to go into an asset you will own, as opposed to going into someone else’s pocket, right? I was also brought up to believe that education was very important and so I spent the first eleven years of my adult life pursuing that1. And the idea of buying real estate never even entered into the realm of possibility in those years, as I barely had enough combining jobs, scholarships, bursaries, and student loans to get by, let alone even think about investing in anything. And since I graduated, my financial focus has mainly been on repaying my crushing student loan debt and trying to build some semblance of an RRSP/pension – and, in the last two years, putting money into my Tax-Free Savings Account.  And though I’ve been pretty good at finding cheap rent, it’s always in the back of my mind that “you are putting money in someone else’s pocket!”  Hence, the thinking about, and reading about, the real estate market.

I mean, I knew that the prices of homes in Vancouver are absolutely nuts, but when I started to read more about it, I was surprised to learn how truly, ridiculously, extremely nuts they are.  A general rule for “affordable housing” is that your housing costs (including taxes and insurance) shouldn’t be more than 30% of your gross income. For example, if you make $50,000 per year, you shouldn’t spent more than $15,000 on your mortgage, property taxes, and insurance. Another way of looking at it is that, to be affordable, houses shouldn’t cost more than three times your annual salary2. Again, if you made $50K per year, your house shouldn’t cost more than $150K. And the thought of a $150K home anywhere near the Vancouver Lower Mainland is laughable. Even our shoebox-sized condos cost double that! Personally, I make more than $50K, especially when I have teaching gigs and contract work on top of my annual salary, and there’s no way I could find a home in this area that costs less than three times my annual income (and that’s not even counting my $1000/month student loans payments thrown into the mix).

And it’s not just me. Over on the Vancouver Real Estate Anecdote Archive blog (which I’ve been following for a little while), they posted a couple of graphs that illustrate the insanity of the market. This one illustrates exactly what I’m talking about:

Dashed lines = salaries (in % increase) and solid lines = home prices (also in % increase).  It doesn’t take a statistician to see that home prices have shot up dramatically compared to income. According to Stats Canada, the median family income in Vancouver in 20073 was $66,330.  That’s *family* income, not individual salaries.  And according to the Real Estate Board of Greater Vancouver, the “benchmark” price for a property4 in Greater Vancouver is ~$577,000. The benchmark price for a detached home is just less than $800,000, and the benchmark price for an apartment is ~$386,000.  So we are talking about nearly 9 times the median annual salary to buy a “typical” home, and 12 times to buy a typical detached house. Even to buy just an apartment, it’s almost 6 times the annual median salary – twice as much as an “affordable” home should cost.  Ouch.

And it’s this crazy house price-to-salary ratio that have people talking about a housing bubble, poised to burst. The Canadian Centre for Policy Alternatives recently issued a report that Canada is in the middle of a housing bubble. Then the C.D. Howe Institute issued a report that says the opposite5.  Though I’m not an economist by any stretch, I just look at these numbers and wonder how on earth people are buying houses?  Of course, low interest rates on mortgages (using very low down payments) have allowed people to do it, and lots of people are saying that it is rich foreign investors and/or drug dealers6 who are buying up the over-priced real estate.  But seriously, why would rich foreign investors continue to buy – and drive up the price of – Vancouver real estate when real estate in the US is so cheap?  And once mortgage rates go up, won’t those people who could only afford their mortgages because the interest rates were rock bottom be in trouble?  And if those same people put down only 5-10% as a down payment, and then prices drop by more than that (as is being predicted by some), won’t they owe more on the house than they could get even if they sold it?

As I have no interest in buying something that I can’t afford, especially given that the value of the “asset” in question could drop considerably (after all, it’s not putting money in your own pocket if the price of your house drops well below how much you owe on the mortgage), my plan is to continue to wait this thing out. I still have a fair way to go until my stupid student loans are paid off anyway, so I’ll just continue on my path of paying those down, balanced with putting some money aside in savings7 and emergency savings8.  Of course, if my dad would just win the lottery like he keeps telling me he is going to, all of this wouldn’t matter!

Image Credits:

Footnotes:

  1. perhaps I took my mom’s saying of “more education is never a bad thing” a little too literally? []
  2. I know I’ve heard this somewhere, but can’t seem to find a reliable source to link to on it. If someone out there has a good link – or if you think I’m totally mis-remembering it, hit me in the comments section! []
  3. the most recent number I came across []
  4. where “benchmark” = a typical property in the region []
  5. I would have linked to the C.D. Howe report directly, but their website is down right now, so I’ve not been able to read the report myself, only the news reports about the report []
  6. the latter who, presumably, aren’t reporting their actual incomes, thus making the estimates of income lower than they should be []
  7. granted, it’s not like I’m making scads of money in my RRSPs and TFSAs, given how much the market sucks, but I’m doing OK, considering []
  8. ‘cuz you never know when you might need it! []

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The National Student Loan Services Centre’s fax number contains “666”

Twitter

So, yeah, I’m still paying off those damn student loans.  But student loans aren’t what I’m bitching about today.  Today I’m bitching about the Royal Bank.

As I’ve mentioned previously, I keep a separate bank account where a portion of my paycheque goes every month, which is used to make my student loan payments.  I have it separate from my main account, which I have at Vancity Credit Union, because I just can’t bear to see $1,000 disappear each and every month – keeping it separate allows me to pretend that I never made that money in the first place!  Anyway, since I started paying off my student loans three years ago, I’ve had this account at the Royal Bank (which holds two of my three student loans – the third is held by the government).  And every month for the past three years I’ve had the same three debits come out of my account with no fees.  But on my last bank statement, I saw there was a $1.50 charge for an “extra” debit, though I didn’t make any more debits than usual. After a bit of back and forth via email with the Royal Bank peeps, I found out that they had changed the rules on the account type I had.  Up until now, my account had no monthly fee and I was entitled to one free debit per month, plus one free debit for every payroll deposit.  I get paid every two weeks, so that gives me two extra free debits – so a total of the three debits I need per month (one for each student loan payment).  Apparently, though their website didn’t say this when I looked at it when the $1.50 charge went through, they’ve removed the free debits for payroll credits, meaning I’m only entitled to one free debit per month, period.  Which, of course, isn’t sufficient.  “But you can get an account that will give you 15 free debits for only $4 per month,” they told me, after I told them I only ever do 3 debits per month.  Since the account I have gives me one free debit and the extra debits cost $1.50, that would only be $3.  And the last time I checked, $4 is more than $3, so, thanks for offering me a worse deal, asshats! Regardless, I’m not willing to pay $3 per month for the “privilege” of paying off my student loans – I still have about five years left to go, so that would be almost $200 in the end. For nothing.  No thanks!  Anyway, I wrote back and restated my needs for this account, asking, “Do you have any accounts that will meet these requirements that won’t have any fees?” (which, of course, is what I have had up until now).  They replied with a form letter that basically told me to look at their website to see what accounts they have.  You know it’s bad when you find yourself replying:

“Hi Sandra,

Thanks for sending me a generic form letter in reply to my question. I’ve already looked at your website and don’t see any options that meet my needs. I’ll just close my account and take my business elsewhere.

Beth”

Did I mention they were asshats?

My next stop was to visit Vancity and see if they had any accounts that would work for me. The person I spoke to there was new and tried really hard to figure out what I was wanting, but she ended up giving me a savings account from which you can’t write cheques or set up preauthorized payments, so that didn’t really work.  A follow up phone call to Vancity (once I discovered that I couldn’t do preauthorized payments) revealed that my only option there that would allow me not to have to pay fees would be  to open a second chequing account and keep a minimum balance of $1,000 in it, in addition to  my main chequing account where I already keep a minimum balance of $1,000.  Not keen to have $2,000 tied up doing nothing, I decided to look elsewhere.  And it seems that my best option is to open a President’s Choice Financial account – they have chequing accounts that will allow me to set up preauthorized payments with no fees and no minimum balance needed.  So that’s my plan.

But it will take a little while, apparently, to get my PC account set up, so in the meantime I faxed the National Student Loans Services Centre and the Royal Bank Student Loans Centre (which, by the way, appears to have nothing to do whatsoever with the Royal Bank… don’t even get me started on THAT rant!) to set up preauthorized payments from my current Vancity chequing account. I figure I can handle one month of my student loan payments coming out of my main account without being too emotionally scarred. I want to make sure I can pay my July 31/Aug 1 student loan payments without using the Royal Bank account – because they don’t deserve even $3 of my money!  And then I’ll use my *one* free debit – to withdraw ALL of my money from that account and close it down!

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Student Loan Update

So, I usually try to ignore the status of my student loan repayment.  Part of my paycheque goes into a separate bank account (at a separate bank1) and automatic payments are made from that account to my student loans every month.  And I try to not look at that account.  Once in a while I’ll pop into my online banking just to make sure nothing has gone awry, but for the most part, I ignore it.  Basically, I just never see that portion of my income – and so I feel (and spend) like I make less than I do.  It’s much less stressful that way than to see the money show up in – and disappear from – my chequing account.

However, I just got my yearly statement for my student loans (for tax purposes) and so I thought it was a good time to see how much progress I’ve made in paying off these albatrosses around my neck.

My progress:

  • amount I owed when I started paying off my student loans in May 2007: $71,000
  • amount I owe as of March 2009: $56,500

Another interesting thing I noticed was how much this economic downturn/recession/depression has helped me with respect to paying off my loans.  When I started paying them off, the interest rate was around 7.0-8.5% (depending on which of my three loans2 you are talking about).  Now my interest rates are 3.5-5.0%  Since the amount I pay every month stays the same, it means that I’m paying off significantly more principal each month, which will result in me being able to pay off my loans that much quicker3. The government student loan centre’s annual loan statement illustrates how quickly this happened. Every month I pay them $423.744.  In January 2008, $213.44 of that was interest; in December 2008, only $140.09 is interest.  I’m paying off  $73.35 more in principal every month now than I was a year ago.  That seems like a lot to me.  It’s still going to take me forever and ever to pay these damn things off, but every little bit helps.

And I shall now go back to my regularly scheduled ignoring of my student loans.

1 Part of my loans are through a bank and part are with the government, as they switched loan systems partway through my education. I can’t move my bank student loan accounts from the bank at which I got those loans or they will cease to be “student loans,” and “student loans” come with certain benefits (interest payments are ta- deductible, you have the option to get interest relief should you find yourself out of a job). So I just have this one account at that bank through which I pay both the student loans held by the bank and the ones held by the government.
2Canada Loan through the bank, Ontario Loan through the bank, Integrated Canada-Ontario through the government Student Loan Centrea.
aDespite the fact that more than half of my student life was spent in BC, I was ineligible to get BC student loans as the BC government, for the purposes of student loans, does not consider you a “resident” of BC while you are a full-time student. You are a resident of BC for all other purposes – paying taxes, getting your health coverage, having a driver’s license, getting a divorce – but not student loans. Which sucks, because friends and colleagues keep telling me about loan reduction plans that holders of BC student loans can get which holders of Ontario student loans cannot.
3Assuming, of course, that interest rates don’t skyrocket! *knocks on wood*
4And that’s only half of what I pay. I pay about that same amount to the bank every month as well. Ugh. You can see why I prefer not to think about this!