The Mysteries of the Student Loan Universe

To pay for college, I took out lots of student loans. I figured the tax break would probably make it worth it in the long run. Typically, I hate debt and believe in buying everything with money I've already made, rather than money I might have in the future. This is the one exception.

For a long time I thought student loan debt was easy, friendly, debt. It's an investment in the future and the government requires that student loan companies are nice to you by putting a cap on interest rates, etc. And for the most part student loan debt is friendly. But I did learn a couple disturbing things about my loans today. Those revelations will come at the end of this post. First, I want to give a little background on what I've learned about the big mysterious world of student loans. Here's how the process worked for me:

Deciding to go to college
First, I decided to go to college, but I knew I didn't have the money to pay for it. I didn't get enough in scholarships, I'm white and I don't have kids, so I don't qualify for grants, and my parents are not rich. So I decided to take out student loans. I had no idea how the student loan process worked. I just knew that if I asked for money, someone would send it to my school, and I'd pay it back at some other unfathomable time in my life.

Note: I went to three schools over the course of my college career. The process was pretty similar for all of them.

Getting a loan
My (first) school sent me a 60 page packet on my financial aid options (maybe not 60, but there are always lots of letters and forms and brochures and pamphlets). The school is nice enough to include a breakdown of how much school costs and ideas for how I'll pay for it. In the how to pay for it column, most of my financial aid letters said something like, 
Loan – Stafford Subsidized
Loan – Stafford Unsubsidized
Loan – PLUS (PLUS loans are student loans parents take out for their children.)

I did get a couple scholarships, but not enough to make much of a dent in the overall cost of my education.

I always thought it was nice that the school assumed my parents wanted to go into debt for my education. Mine didn't, and I don't blame them.  

Anyway, the key part of this packet is the student loan application. I'd fill out the application, choose an institution to originate the loan for me (from the list provided by the school), and mail it in.

The origination fee
At some point I got more envelopes in the mail from my school. The papers inside would show that I paid a 4% origination fee to the institution that originated my loan. (According to http://www.finaid.org/loans/studentloan.phtml, the origination fee is a 3% origination fee and a 1% default fee). Which means that if I took out the $3,500 maximum Stafford loan amount, I paid $140 to the originating institution and my school received $3,360. My first school was a whole lot more than $3,500 a year, so the origination fees were way more than $140.

Note: These origination fees are supposed to be phased out by July 1st, 2010, and lending institutions could choose to waive the 1% default fee.

Payments
Students are not required to make any payments on student loans until after they've graduated or quit school and used up the given grace period.  

Some student loan companies (all of mine) offer a partial percentage rate reduction for making automatic payments, or for making on time, in full payments for a specified period of time. If a student loan is not in “repayment” (meaning, you're still in school) and you're making payments anyway, you usually do not qualify for these interest rate reductions.

Selling my loans
At some point, the institution(s) that originated my loan(s) sells the loan(s) to another company. This way someone else can service the loans and the first institution can focus on originating more loans.

When this happened any interest I owed on my loans was capitalized. Meaning, it was rolled into the principle. So rather than accruing interest on the original principle amount ($3.500), it is now accruing interest on a higher principle balance ($3,746.25, effective [(1 + effective annual rate) x original principle balance)] see the interest section).

Repeat
Each year this process repeated. Sometimes a loan company that had already purchased my loans from the originator would again resell them. Resulting in more capitalized interest.

Repayment
Here's where student loans get fun. Repayment begins when a student drops below half-time enrollment and uses up the given grace period. When this happens you get to choose from a few different repayment plans, set up automatic withdrawals, and generally forget about your loans.

Repayment is usually for 10 years unless you work out something else with your student loan company.

Interest rates
The interest rate for unsubsidized Stafford loans is 6.8%, fixed for funds distributed after July 1st, 2006. The government also instituted an 8.25% cap on all student loans. For subsidized loans, the interest rate is slowly phasing down (the federal government is paying it, after all).

What nobody told me, and I just found out today, is that interest is typically calculated on a daily basis. Daily!  

I'm an overly money-conscious finance geek, how did I not know this? I suppose it was a combination of me assuming that student loans were nice things and that I figured I was getting a pretty good tax break, so why care?

When I had some questions about one of my loans at ACS Education today, the woman on the phone told me that my interest is calculated daily. I called my other two student loan companies and discovered that they're all calculated at a daily rate!

The annual effective rate for 6.8% interest compounded daily is 7.04%. Luckily, none of my loans have an interest rate that high.

Prepayment penalties
Sometimes, if you pay more than your payment due, your student loan company might treat that as a prepayment. Which means they won't take out any payments for however many payments (months) that extra payment covers, but you'll still accrue interest, daily, over that time period.

So when your “prepayment” is over, your next payment might not be enough to cover all the accrued interest. So your next few payments will only cover interest! This is the result of paying extra on the principle of one payment.  

I had to spend a half an hour on the phone with customer support from ACS Education to find this out. (And I had to ask for a supervisor for someone to be able to explain to me why a lower outstanding balance and a fixed interest rate resulted in me paying MORE interest than the previous six months!)

So, in the future, if I pay extra on my loan, I have to call ACS and tell them to not treat it as a prepayment! Otherwise, when the prepayment is done, I'll owe more interest than each student loan payment will cover.  

The woman I spoke with at ACS insisted this wasn't a “penalty” for prepaying. But she did agree that it wasn't in my best interest to do this without calling them to tell them not to treat it like a prepayment.

Tax benefits
Finally, what makes me not care so much about all the interest bs, is that for all student loan interest that I pay, it's like I never earned that money in the first place.

If your modified adjusted gross income is less than $70,000 (145,000 for joint returns) a year, you can reduce the amount of your taxable income by the amount of student loan interest you paid, up to $2,500. More information here.

When I do the math, though, it's really not much of a tax break.

Say I make $20,000 a year (I don't, I make less).
And assume I pay 20% interest (a rounded average of what comes out of each pay check).
$20,000 x 20% = $4,000 a year in taxes.

With the tax break, if I pay a full $2,500 in student loan interest each year (I don't, I pay less), my taxable income would be $17,500.

$17,500 x 20% = $3,500

So, I would get a $500 tax break for paying $2,500 in student loans. I'm still worse off by $2,000.

Conclusions
1 – don't assume student loans are friendly things.
2 – don't assume tax breaks are beneficial without doing all the math first.
3 – I'm probably better off without the student loans. Maybe in the future when I'm utilizing my great finance degree skills, I'll be better off. But for now, I'm not doing anything any differently than I would have if I hadn't gone to college. Except I might have felt more motivation to find a more lucrative job by now (to prove myself).

shark image from http://hornbillunleashed.wordpress.com/2009/06/16/human-sharks-on-the-prowl/

Is AAA a good deal?

AAA sent me a renewal notice recently, and I thought, “$55 a year! Is it really worth it? Does my car insurance company have anything cheaper?”

I decided to find out. I use Progressive right now (which I am very happy with) and pay somewhere around $250 every six months for a 1996 honda civic. I have the least amount of insurance possible to keep my rates low (and I also I drive a car that's probably worth less than $1,000). I do realize that I'm probably seriously screwed if I'm ever injured and the other person doesn't have insurance (and my health insurance company refuses to pay for anything).

So anyway, I found that it's much more expensive to get roadside service from Progressive than it is to get it from AAA. But for most people, it's probably cheaper to get it from Progressive. Here's why:

When I went to the “change your policy” page on Progressive's website, I selected yes for the roadside assistance box, which looks like it offers the same services as AAA. But when I hit the continue button, an error at the top of the page told me I had to add collision coverage in order to add roadside assistance. So I added it with the highest possible deductible and hit continue. But then I got another error message that said in order to add collision coverage, I have to add comprehensive coverage. So I picked comprehensive coverage with the highest possible deductible and hit continue.

On the next page, I found the following charges for a six month period:

$7 for roadside assistance (for six months!)
$65 for collision coverage
$27 for comprehensive coverage

$99 total increase for six months, or $198 a year.

A AAA membership is $55 for 12 months, and clearly, the winner (for me).

I say this is probably a pretty good deal for most people because I assume that most people make car payments and have to carry comprehensive coverage (I don't know if you have to carry collision or not, but I'm assuming you do). And I suppose if you were already paying for comprehensive and collision coverage, $14 a year would be a pretty good deal compared to $55.

But for me, AAA wins.

The Master-Key to Riches

I just started reading The Master-Key to Riches by Napoleon Hill (recommended to me by my optometrist when I was 18).  

It's been on my bookshelf for five years or so, and I've started reading it maybe three times, but it's a tough book to get started.  

It seems like there are good ideas on finding happiness in life inside, but it's slow reading.  (No offense to any Napoleon Hill lovers, but he writes like a magic juicer infomercial host from the 1950s.)  I can only read maybe 5-10 pages a sitting before I have to put it down, but I've decided to power through it. And it'll probably be good for me.

In the few pages I have read, he says a few things that really ring true with me. First, he writes in the Happy Man's Creed:

I am on good terms with my conscious. Therefore it guides me correctly in all that I do.

and

I own a great estate which is not taxable because it exists mainly in my own mind in intangible riches which cannot be assessed or appropriated except by those who adopt my way of life.

I can do without the evangelical “except by those who adopt my way of life” part, but the rest of it I like.

In a later section on Definiteness of Purpose, he writes:

'It has been my experience,' said he [Andrew Carnegie], 'that a man who cannot reach a decision promptly, once he has all of the necessary facts for [the] decision at hand, cannot be depended upon to carry through any decision he may make.

Andrew Carnegie, in the example Napoleon Hill uses, asks Napoleon an important question and times his response with a stopwatch. Carnegie's threshold was 60 seconds.

I'm my small amount of life experience so far, I've found this 60 second threshold to be a really useful rule of thumb (for myself and others).

Anyway, I don't feel the need to expound on any of his points, I just wanted to share them.

Pressuring Out

I am perfectly happy with my existing position at smoothie land. Right now, I assist the person who officially runs things despite the fact that I have the skills and knowledge to run things myself. I have no desire to move up even though a promotion would mean a 45% pay increase. For me, that 45% pay increase isn't worth it, because it would also mean:

Being on-call 24 hours a day.
Any time anyone in my company needed to contact me, I would be expected to drop what I'm doing, answer my phone, and work. 11 o'clock at night, 7 o'clock in the morning. Any time.

More commute time.
Right now, I work three to four days a week. On a typical day I leave my house at 5:30 am and get home at 5 pm. I get paid for 9.5 of those 11.5 hours. That's 8 hours a week (for a four-day week) I dedicate to my job that I not only don't get paid for, I pay for them in gas. If I accepted a promotion, I'd be expected to work 5 days. That's 10 hours a week of time dedicated to my job that I wouldn't get paid for.

More working hours.
I also would be expected to work 45 hours a week, rather than the 38 that I typically work. Right now I work 38 work hours + 8 hours of non-paid commute and meal period time = 46 hours. If I were a person running things, I'd work 45 work hours + 10 hours of non-paid commute and meal period time = 55 hours a week.

A non-consistent work schedule.
I am happiest when all my work days begin and end at the same time every day. When my work schedule is consistent, my sleep schedule is consistent, and I feel refreshed and happy and super productive. My company requires that anyone who is the next level above me work a combination of opening, mid, and closing shifts every week. From a business stand point, this makes sense. But for me, I would be totally miserable. I'd be a sleep deprived zombie and feel like I were living a chaotic and hectic life.

No mini-vacations.
If I were in charge, and there were no second-in-charge to run things for me if I took a vacation, I wouldn't be able to take a vacation. Also, I would have to do away with my mini-vacations. The higher ups already don't like that I take them as an assistant, despite the fact that I receive no paid vacation time (and thus never take official vacations).

More drama.
Right now, when something goes wrong, my boss hears about it first. There's usually a lot of drama during the process of identifying a problem and identifying the solution. So my boss is the buffer between me and all that, and I am seriously grateful for this. I'd much rather be involved in the solution after all the emotional arguments have been gotten out of the way.

When I first graduated from college, I was offered a store. I turned it down. At some point, I was offered one again. I turned it down. And it seemed like that was okay for a while. But now, the demand for more people in the position above me is getting bigger. I just wrote a book (seriously) on how to do the job of the next person up from me. And now, the pressure from the side comments and mutterings under the surface for me to acquiesce are really stressing me out.

Not everybody is motivated by power, money, and the approval of higher ups. I certainly am not. I am motived by having a calm, balanced, happy life in which I wake up every day and think, “life rocks!”

I want to say that the people pressuring me don't understand this concept that somebody wouldn't want to change her life to one that is more miserable and depressing in order to do something that'll be more convenient for the company. But I think they do. And I think they don't want those kinds of people working for their company.

I think eventually my option will be, “move up, or get out.”

What ever will I do?

How to Drive Volunteers Away From Your Organization

The only organization that I routinely volunteer for is the Humane Society for Southwest Washington. For the most part, I enjoy it, and I think the only reason I enjoy it is because I get to play with and socialize with homeless dogs and help find them forever homes.

The Humane Society for Southwest Washington does a lot of things right, in my opinion, like working with dog behaviorists to make the humane society a positive, beneficial experience for the dogs.

100% of the issues I have with the organization come directly from the paid staff at the shelter. There are THREE paid staff members in the entire organization who are friendly and civilized with me and that I enjoy seeing.

So here is a list of things that all paid staff members do (except for those three people mentioned above) that I think are effective ways to drive away volunteers. And really, the only reason I volunteer there, is because I love dogs, and I want to help them (without adopting all of them and becoming the crazy dog lady). And I also enjoy the other volunteers. Here's the list:

1. Never say thank you.

There are two staff members who ever say “thank you” to me. One is the canine coordinator, and one is (I think) a vet tech who talks to me like I'm a normal human being and says “thank you” to me when she sees I'm done for the day.

Thank yous are so infrequent at the shelter, that I was seriously shocked the first time I heard one.

2. When a volunteer asks your paid staff for assistance, be sure that your paid staff act as inconvenienced, unhappy, and resentful as possible.

This is especially effective when only one volunteer shows up for her shift when there should have been three. When you add a couple kennels full of puppies (puppies cannot go outside...puppies poop constantly poop, mostly liquid... volunteers clean up liquid poop from kennels), and a few families who want to come meet dogs (this process usually takes a lot of time, which is totally understandable), and 25 other dogs who haven't been outside to pee in 3 hours, the end result is one super frazzled volunteer.

So when the volunteer asks a staff member for help, and the staff member resists, and asks for all the reasons why the volunteer needs help, and only helps with one specific task and then disappears, you end up with a not so happy volunteer.

3. Ensure that paid staff NEVER smile or act in any way friendly toward volunteers.

This one's kind of a no brainer. Who wouldn't want to drive 30 minutes across town in pre-rush-hour traffic to come hang out with people who are unhappy and unfriendly? And then finish volunteering at rush hour and drive 45 minutes back home?

4. Ensure that your paid staff give your volunteers conflicting directions on the “right way” to do something.

This is really only effective if another staff member also tells the volunteer that the way she's doing it is the “wrong way” and then teaches her how to do it the “right way.” This is even more effective if the “right way” was the way the volunteer was doing it the first time.

5. When you send an email to volunteers about a “mandatory training” in a new location and fail to include the address, be sure to give the volunteers who ask for the address an abrasive, “look it up yourself” email response.

This is my favorite. The job of corresponding with volunteers has been taken away from the (friendly) volunteer coordinator and given to the (unfriendly) “community programs ssistant.” This new assistant does not smile, does not say thank you, and apparently does not expect that anyone ask for clarification on her miscommunications.

She also spelled my name wrong when she responded. Seriously, my name is in my email address, at the bottom of the message, and on the sender line of the message.

I could go on, but if you're really looking to drive volunteers away from your organization, and you've accomplished the above 5 tasks, you probably don't have any volunteers left to practice these on anyway.

So how are there still any volunteers at the Humane Society? And why I am still there? I think most of the volunteers at the Humane Society are still there because they love dogs and want to help them. I also think that, for the most part, the volunteers ignore the unfriendly staff and have their own friendly, happy volunteer bubble.

I have no suggestions for penetrating the happy, friendly volunteer bubble.

About Writing Job Ads

I've been doing lots of job hunting online. I am not very well networked, so this is the solution that works with me. Over the last couple months, I've read tons and tons of job ads, and I've noticed a few recurring things that make me not even consider a job just based on the way the ad is written or formatted. Here are those things, in no particular order.

First, spelling and grammar are super important. I assume that the person who writes job ads is the same person who is in charge of the interviewing and hiring. The same person who might potentially be my boss. Do I want to work for someone who doesn't know the difference between there and their? Or your and you're? In the jobs I'm looking at, no.

Second, simply writing depending on experience or DOE does not make me want to work for you. If you can't be transparent about a salary range you might be willing to offer me, I don't want to work for you. I don't want to spend a bunch of time applying and preparing for an interview if I find out once the process is over that you're only willing to pay $25k a year for a job that I think is worth $45k a year.

Third, keep it simple. I do not want to slog through three paragraphs of your company history before I find three paragraphs of job duties, and twelve bullet points of qualifications. If you want to include something about your company, do it at the end. When I look at a job ad, I skim the job duties, and move straight to the qualifications section if I'm interested. More often than not, I find that jobs I like require something like 10 years of experience or a masters degree in something I have no interest in. If I'm qualified, and I like the job duties, I'll google your company to make sure I think it's a good fit for me.

On the other hand, don't make it too simple. A job ad that just says, "Are you an experienced receptionist looking to work in a fast paced office setting? Look no further, email us your resume today!" doesn't tell me anything about the employer's expectations. What company are you? Where are you located? What industry are you in? What are the job duties? Nothing about that ad jumps out at me and makes me want to work there. In fact, it makes me skeptical that this is even a legitimate job ad.

Next, if you've never hired for a specific position before (ie, you're a small, growing company) know what skills and qualifications you're looking for before you post the ad. Ask colleagues or google the salary range and educational requirements before hand. I see too many ads for a glorified receptionist/coffee fetcher for $10 an hour, but the job requires a bachelor's degree. Do you, dear employer, really expect that anyone is going to spend tens of thousands of dollars on a degree in order to work a dead-end, $10 an hour job? I don't think college degrees have devalued quite so much yet.

Next, know that google can find you, even if you are careful to not include the name of your company in the job ad. This is especially true if you provide an address for applicants to send resumes to. What are you hiding by not including your company name in the job ad? Before I invest the effort in tailoring my resume and cover letter for your job, I want to make sure that your company is a place I might want to work.

Lastly, remember that when you post a job ad, you are essentially selling a position within your company. You have a need and you are asking someone else to fill it. In fact, you want someone else to WANT to fill it. You are trading something of value for something of value (a paycheck for a particular set of skills or expertise). That being said, if you've got a chip on your shoulder when you're writing the ad, and you want people to want to work for you, you'll want to remove that chip before you write the ad. Talented individuals who might want to fulfill the need your company is advertising for don't want to read an ad addressed to an idiot. They, after all, are not idiots.

That's it for now for all the things that make me skip right over a job ad, regardless of how great a job it might potentially be.

Tons of Free Time Isn't All It's Cracked up to Be

When I first started working only twice a week, I figured I'd have tons of time to do all the things I'd never get to do because I was always working. Here's what I discovered:

1. It does not take five days to do all the things I always wanted to have the free time to do. I wanted more time to read? I can read for an hour a night and be ok. I wanted to walk my dog more? I can walk him for an hour before I go to work. I wanted to cook more? I do almost all of my cooking in batches, once a week.


2. Most of the things I thought I'd do if I had more time, I didn't. Like, I did not start regularly going to the yoga classes at the YMCA like I thought I would.


3. Most social activities are planned around the 8 to 5, Monday through Friday work week. Which means there aren't really that many more activities for me to do.


4. My friends are always busy. They have jobs, they're in school, we can hang out on the weekends or after 5 PM.


5. Most social events are planned on the weekends. So if there are a lot of things I want to do, I'll have to choose some over the others.


6. Having friends who are employed means having friends who are willing to spend money on things that might seem frivolous or not so very valuable to me.


7. Having so much time to myself makes me cling to my friends like life lines. I am sure this is annoying.

To sum all that up: there is such thing as too much free time.

Now Is the Time for Me to Do Something I Love

I'm reading all these books and blogs and articles that tell me to do whatever it is that I really want to do. Nothing but opportunity awaits me. I'm young, educated, and free. I can do whatever I want.

So when I have 5 of the 7 days of the week off work, I wake up wondering what I'm going to do today. And what do I do?

Nothing.

I sit on my ass, bored. I read blogs and books and articles about lifestyle design. And how to build my life around the activities I truly enjoy.

But I don't actually do any of it. I don't make any attempt to build a business or bring in any sort of income. I find other, easier, things to keep me busy. Like watching movies and cooking. I can't even blame drugs or alcohol or friends who are bad influences on this lack of ambitiousness of mine. I don't do drugs, I rarely drink, and all my friends are GOOD influences and very encouraging.

What do I need to motivate myself to get off my ass and do something? The only two things I can think of right now are a) I run out of money, or b) I have to do it otherwise I'll die of boredom.