In October 2016, I paid off $115,000 worth of debt that I accumulated in physical therapy school. It was such a huge accomplishment that I immediately downloaded all my payment records and saved them so no one could tell me otherwise. Now that I’m more financially curious, I broke down exactly how much I paid towards my student loans.
In doing so, I might as well share my struggles, fears, and thought process along the way.
For those who are curious about how I accrued these loans in the first place, check out this article. Otherwise, let’s move on.
May 2014: Graduation & Initial Student Loan Repayment Strategy
I graduated in May 2014 and my first payment was not due until December.
Despite employing strategies to mitigate costs while in school, I borrowed $96,933.14 for tuition alone.
List of all loans borrowed:
Realizing that the popular Income-Based Repayment (IBR) plan is a loser’s game and the Standard Repayment Plan would leave me without a life for 10 years, I had only two options:
- Pay off my loans as quickly as I could
- Seek Public Service Loan Forgiveness (PSLF).
At the time, it was the clear choice to go the PSLF route since I calculated I would be paying about a fourth of what I borrowed over 10 years. It was a no brainer — or so I thought.
The only things I needed to do was to:
- Make 120 qualifying loan payments (a minimum of 10 years)
- Working full-time for a qualified employer (Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code)
- Enrolled in an income-based repayment plan (Such as the Pay As You Earn)
- Submitting necessary paperwork annually (Annual application, employment verification, and pay stubs)
I had all my paperwork squared away and was ready to commit to 10 years of making qualified payments. My loans should then be forgiven (If only it were that easy).
December 2014: My Balance At Repayment, Let’s Begin!
I was surprised to learn that my principal suddenly grew by over $10,000! When my grace period ended, it triggered something called capitalization. This is where your outstanding interest gets added to your principal and you will be paying interest on a larger balance. Trust me, you do not want the power of compounding interest working against you.
Lesson # 1: Pay off all your interest before the end of the grace period to avoid capitalization unless you are 110% sure your loans will be forgiven tax-free
Ultimately, my principal increased from $96,933.14 to $107,512.32.
After catching my breath, I figured it didn’t matter because my loans were all going to be forgiven under the PSLF program… right?
My First Payment Under the PSLF
I was accepted into a residency program that was a qualifying employer according to PSLF rules. I couldn’t be happier earning a $62,400 salary and only having to pay $185.47/month towards my loans. This is dramatically lower than the $1,200/month I would have paid under the 10-year standard repayment plan.
I learned that 100% of my payments go to interest before enough touching the principal. This meant that my $185.47 payment only applied to my interest which was accruing at over $600/month.
I was initially nervous watching my balance increase but I convinced myself it wouldn’t matter because my plan was to have it all forgiven anyway.
Then there came a problem that changed the course of my life.
The Problem
I did not anticipate my time with this PSLF qualifying employer would be so short-lived. I was a wide-eyed new grad PT who was pumped up to help as many people as I could.
The last thing I expected was workplace intimidation, bullying, and abuse that led to many levels of physical and mental health issues that I had to deal with for years after.
I knew could no longer stay at what I thought would be my dream job. It was my first place of employment and the environment turned out to be toxic.
After the longest year of my life, my contingency plan to transition to another healthcare system backfired as they were recently bought by a for-profit company. I was left frustrated and depressed from months of unsuccessful searches for non-profit facilities.
Overcoming career-related identity loss was one of the most difficult things I ever had to endure. It all started with a change in pace.
The Solution
Rather than frame my search for employment around qualifications for public service loan forgiveness, I framed it around where I would be most happy.
I figured no amount of loan forgiveness would be worth the stress, unhappiness, and uncertainty I was experiencing.
By no longer being limited in my search, I quickly found a supportive position in a healthcare facility within the private sector and resigned from my first job.
At this point, the most certain and efficient way to get rid of my loans was to pay it off as quickly as possible.
Up to this point, I already paid $2000 in interest and accrued an additional $5,000 in interest after just 1 year! I briefly dwelled on the fact that I could have saved thousands of dollars if I decided to aggressively pay my debt from the get-go, but I know I needed to move on.
Lesson # 2: Choose a repayment plan you are 110% positive you can commit to no matter what happens. This is my $7,000 lesson.
December 2015: My Revised Repayment Plan
No longer pursuing public service loan forgiveness meant that my monthly payments were no longer correlated to how much I earned.
I felt that I could now focus on increasing my income without any consequences.
The plan was simple: Earn as much money as I could, spend as little as possible, and put the difference towards my student loans.
I also signed up for automatic payments, which lowered my interest rate by 0.25%
Lesson #3: Sign up of Automatic Payments to reduce your interest rate! Refinance when you are eligible.
New Job + First Month In The Debt Demolition Phase
I started my new job in December 2015 with a negotiated salary, I increased my income by 10% to $69,000 and I felt comfortable enough to begin attacking my student debt.
Lesson #4: Negotiate your salary ㇐ don’t leave money on the table.
I decided to nearly empty my bank account by making a HUGE lump sum payment on my loans.
December 2015 Payment Summary: $59,682.64
As you can see, from the graph above, I tried my best to use a combination of the debt avalanche and debt snowball strategy. In my first month attacking my debt, I completely paid off 7 of 13 loans totaling $54,205.67.
I paid an additional $5,476.97 on my remaining loans, but since it did not show well on the graph, I decided to place them in chart form.
This brought my total to $59,682.64 paid in December 2015.
Since I was still enrolled in the Pay As You Earn Program, I was able to minimize my payments towards low-interest loans while targeting high-interest loans.
Remaining on this program allowed me to mitigate risk.
If I lost my job, I could go back to making $200 monthly payments without any hassle.
Full Disclosure: Only about half of that was my money.
During my first 14 months of professional work, I earned $46,000 after taxes and deductions. Of that money, I saved up a whopping $35,000.
This 76% after-tax savings rate was only possible living at home, living frugally, eating leftovers, and taking public transportation to work.
Most of my spare money went to contributing to household bills to convince my mom she didn’t need to work overtime any longer.
While she did stop working overtime, she continued offering to help me financially. I finally gave in to accept a $30,000 personal loan. This was extremely difficult to accept because it was a significant amount of her savings. Part of the agreement to this loan is that she will allow me to pay her back.
Lesson #5: Sometimes, you just need to accept when you need help. Your friends and family may be more than willing to give it.
I understand this is something that is not available to everyone and I am very grateful that my mom was in a position to help me save me a couple thousand in interest.
Update May 2019: My mom didn’t want me to pay her back as agreed, but I didn’t take no for an answer. It was a bulk of her savings and I wouldn’t feel right if I didn’t pay her back. I convinced her to let me open an IRA on her behalf and began contributing the maximum each year and taking advantage of the catch up contribution as well. It also gave me the opportunity to reallocate funds in her main retirement account since I became more financially savvy. That account is now worth nearly $40,000. Also, around the same time I finished paying her back, I bought her a house. If you’re curious why, check this article out.
Update Dec 2021: Things really do go full circle. My mom is retiring soon and since I took over her finances back in Jan 2018, her retirement assets has doubled! A good portion of this was due to rebalancing her account during the bottom of the market in 2020.
Okay, let’s get back to my student loan story!
One thing I wish I did during my aggressive pay off was to refinance my loans. Doing so would have qualified me for a lower interest rate.
The fact of the matter is that I quickly disregarded it as an option. My fear of the unknown overshadowed the potential cost-savings.
Lesson #6: Refinance your loans for a lower interest rate as soon as you can with consideration of forfeiting the ability to change back to a type of income driven repayment plan.
January 2016: Increasing my Income and Reducing my Expenses
My goal was to pay off the federal government before my wedding on October 1st, 2016.
The only way to do this was to increase the gap between what I earned and what I spent.
Increasing My Income:
In addition to making $69,000/year from the new job, I also picked up a second job working a total of 56 – 64 hours per week with the occasional 70 hour week.
In 2016, I earned an additional $16,000, bringing my total gross income to $87,000.
Further Reducing My Expenses:
I continued to live at home with my mom and siblings while paying $500/month towards bills. My older brother, who had a family of his own, was able to help me with the internet bill. I switched mobile carriers and got rid of our cable service since we only watched a few channels anyway. Ultimately, I reduced my responsibility to $300/month.
Continuing to live at home, bringing leftovers to work, living frugally and not purchasing a vehicle made it possible to save 88% of my after-tax money pay down my debt.
Lesson # 7: Living with parents even for a year can accelerate your progress to paying off debt. You may also buy and rent out extra space in your home to speed up the process. If renting, explore subleasing.
2016 Payment Summary: $53,527.85
Looking back, I can’t believe how much I worked. I distinctly remember the cold months where I worked 12 consecutive days, 4 of which were 14 hour days between two jobs. Needless to say, I didn’t do that to myself again.
After discussing the progress of my loan payment, my wife lent me $10,000 to make sure we were debt free prior to our wedding. I am glad she already paid off her loans from OT school and was in a place of financial strength to help me do the same.
July 2017 Update: I paid my wife back while beginning to contribute to my retirement accounts. All is good in paradise!
October 2016: Goal Met!
With perseverance, financial savviness, and support from family and friends, we made sure my student loan servicer no longer made money from decisions from my younger self. My wife and I tied the knot on October 1, 2016 and lived happily ever after.
Just kidding, we found ourselves not knowing what to do with our life after debt, that a story for another day.
Related: Our Pre-FI (Financial Independence) Fog
How Much Did I End Up Paying?
Placing all my numbers in a spreadsheet, the total the amount I paid is $115,227.19 between 2014 and 2016. $10,579 of that was accrued interest during school and during my grace period. Another, $7,714.87 accrued during my repayment period.
What strikes me is that I accrued approximately $7,000 of interest while I was pursuing the PSLF program. Comparatively, I only accrued $700 in the 8-9 months that I was aggressively paying off my loans!
In total, these loans cost me $18,294.05 or 18.89% of what I borrowed!
Seeing how the stock market rose in those years, I would have been better off investing my money. However, no one can predict when the market will shift. Even with the investment knowledge I have now, I would not risk a certain 6.28% interest rate on $100,000 for uncertain gains in the market.
It’s much more important to make decisions that allow me to sleep better at night. This is the beauty of personal finance – it’s personal
As you can see, paying off this amount of federal loans at my starting income was no easy accomplishment. I know my situation was unique because of the family support that was provided, but when you consider the pace at which I was paying off those loans, the money that was lent to me maybe saved me at most $2-4k which is just 1 month of payments. I’m not saying this because I’m ungrateful of course, but saying it to place some perspective to the many people out there who are not afforded the type of family support I was fortunate to have. While I appreciated money that was lent to me, what was more powerful was the overwhelming support from family and friends that supported me in tackling this debt. Two to Three years worth of friends and family understanding why I was so damn frugal and why I was working so much went a long way.
For those on a similar path, I hope my story inspires and guides you through your own debt-free journey.
What now?
My wife and I are now on the journey to reach financial independence so we can make work optional.
Check back for updates on our journey or subscribe below to get updates to your inbox.
Sharing this with my students who are a bit struggling with their finances. They are all in their 20s, so some of these might not work but hey, it’s a great start for them. Getting a side job would solve their problems but I think they need someone else to validate that thought. Maybe this will work. Thanks.
Thank you for sharing Jiselle. It is certainly hard to convince people to either work more or spend less, but if you can help them internalize the value of increasing the gap between income and expenses, they will find their path to financial stability and will be set for life. What I’ve learned is that the majority of people work hard for their money, but need to work harder to understand how to keep it and make it work for them. Good luck!
Exactly. This is what I keep telling my students and I hope they realise it soon. Thanks.
Great article and breakdown dude. I’ve never had student debt, so I can’t even imagine the stress of a negative net worth. But I have experienced the working 2 jobs and 60 hour weeks. And the unhealthy workplaces that aren’t worth staying in. So glad you and your wife are in a great spot now and are on the fast track to independence. Congrats!