At the end of 2007, I set out goals financially for us to achieve here.
- Max out 401k - on track
- Max out Roth IRA 2008 - done
- Max out ESPP - done
- Cash Flow $20k tuition - done
- Not take out student loan of $8500 - debating
- All cash month - done
It’s not yet the end of the year but I had to write this post. Mostly because we’re stuck. I did the all cash month in January and wrote about it here. Turns out I became even stingier than I ever imagined. I couldn’t, wouldn’t and hated spending any cash.
We finished our contributions to the Roth IRAs and right now we have $5k saved for 2009 Roth IRA contributions. I think we’re on track for that as well.
But we recently were approved of course for another $8500 Subsidized Stafford Student Loan for DH’s part-time MBA. Currently DH has $17k in Subsidized Stafford Loans from the previous two years of his program. We have managed to cash flow the rest of the tuition but it has been hefty @ $1142 per credit. This coming year 2008-09 he will take 16 credits with the summer off. Unlike previous 2006-07 and 2007-08 where he took 26-30 credits for the whole year because he took a normal part-time load in the summer of 2 classes.
So we will only be paying $18k for tuition + fees + books + parking so $20k I think for 2 semesters. We’ve paid this for 2 years and it should be a cinch right? So what’s the problem? Why are we even considering taking out the loan when we have managed previously?
One major thing is that our fixed annual expenses have been increasing rapidly. Like I’ve mentioned in my post our gas has doubled from $80/month to $160/month budgeted. Last year as well we were spending $400/month on groceries, but I carefully pared it down to $200/month. Now it’s been slowly creeping back up though I’ve managed to stockpile non-perishables home supplies, dry and canned foods, and cooking from scratch.
Two, in the past 2 winters our heating and electric costs have skyrocketed. Over 40% increases in 1 years which leaves me worried about this coming winter. We already live with the temperature set at 50, wear lots of clothes, and are very energy conscious. We’ve made any improvements to insulate our home to be more energy efficient, and this summer we are planning on painting, plastering, and sealing cracks again. But I know costs are rising fast.
This combined with annual raises of 3% puts in the position I think of having less money than we did 3 years ago when we moved into our current housing situation without tuition payments.
We hadn’t exactly planned out how we’d finance my DH’s tuition. Though I walked out of undergrad with student loans he didn’t. We didn’t even research what it would cost, because to both of us this degree is imperative to our future financial well being. I know we did discuss trying to find a public university but the wasn’t any other choice than the private university he choose.
So we’re stuck. We’re unsure if we should take out the loan or not. Is it in our best interest? I’ve been bouncing ideas off of people, and one thing is we could cash out all of our savings and go for it. We have an EF and the Roth IRA savings and we could make it. However there is a lot of risk involved with not having any safety net.
We could gamble on my DH’s bonus in March 2009. Right now he’s guaranteed company stock vesting of $5k I think, we haven’t thought or looked at it because unless we know he’s getting it we don’t count on it. Honestly it’s more of a surprise if it comes through. But we should we count on it? I have never budgeted money before that we didn’t have and feel a bit uncomfortable doing it.
Another option, unpalatable to my DH, is stopping savings for home and car repairs about $500/month. Because of the age of our home, 1880s victorian and 1999 and 2000 model cars, we feel it important to have cash to repair and maintain both. And trust me we’ve used it! This year we’ve spent $4k on the cars alone for normal maintanence, and $1k on the house with plans of spending another $4k for essential repairs to keep the house well insulated and in good shape. But this could be cut too.
Finally we could cut all miscellanous spending like eating out, entertainment, blow, gifts, etc. That might free up another $500/month. But my husband might be upset if I completely deprive him of everything, so I hesistate to get so drastic.
I’m not sure where I stand. My DH and I have discussed this a little and he’s hesistant as well to get into more debt. He debates whether we should stop saving for retirement and pay cash for his schooling?
But are there any pros to taking on the debt? Mostly it’s security in knowing we have lots of cash flow for emergencies. It’s being able to save money and really make sure we have an adequate EF, while not living drastically lean. Also it’s not too bad because my DH really has plans for fully utilizing his degree. He’s already been networking and has entered business competitions.
Because my DH is very dedicated, I feel his student loans have been absolutely essential to degree. He is not an undergrad searching for a job, he has a job in a field he likes and is broadening his horizons to have more of an impact in the field. He would love to be someone making the decisions one day. Right now he does work full time and goes to school nights, so he can’t pick up another job. And I’m in school getting paid and I pick up all the slack for him being gone a lot. So I could pick up another job but I’m not supposed to according to my contract with the university.
Finally we paid in cash $15k in tuition since May. We haven’t taken out any private loans or unsubsidized Stafford loans either.
So should we deviate from our goals? I don’t know, weigh in, we’re listening. We have time to make a decision.
13 responses so far ↓
1 Ashley @ Wide Open Wallet // Jul 28, 2008 at 12:04 pm
Tough one. I understand your hesitation to take the loan but on the other hand you don’t want to get yourself into a really bad spot. I’ve never taken student loans so I don’t really know the rules but can you take the loan and pay it back early with your husband’s stock options when he gets them, or other cuts in your budget.
2 DebtDieter // Jul 28, 2008 at 2:59 pm
You guys seem so responsible with your finances that taking the loan may be a good option for you, as you know you’ll get it paid off as soon as is feasible.
Perhaps if the bonus does come in you could just pay off the loan a bit quicker?
3 Kristy // Jul 28, 2008 at 3:47 pm
I think you should take out the loan and continue to save and pay it off as soon as you can or as soon as your DH graduates. This way you are financially secure for any emergency that pops up in the meantime.
4 LJ // Jul 28, 2008 at 5:47 pm
I understand the hard decision but if you are really going to look at the situation I think you need to figure the interest rate you would be paying on the loan verses the dividend rate you would earn on the savings. I would base my decision on those calculations. I the long run I would decide which would earn or save you more. I am not sure if this really helps but as a person trying to get our of debt myself I am very cautious of adding more debt. Believe me it add up quicker than you think.
5 Livingalmostlarge // Jul 28, 2008 at 5:51 pm
LJ there is no interest on the student loans until DH graduate and then for 6 months afterwards. So this is an interest free loan.
Definitely the reason why I am considering it is because it does add up quicker than I bet I could imagine.
I am nervous about adding to debt, but I am also nervous about draining my Emergency Fund money and all cash on hand. Neither scenario really appeals to me to be honest.
6 Angie // Jul 28, 2008 at 6:41 pm
I agree with Ashley, Debt Dieter and Kristy - take the loan, and pay it down with any stock options/bonuses that come your way. I’m generally not a fan of loans if you can cash flow something, but no matter how secure you think you are, nothing in life is certain. It would be better to keep your EF for a true emergency instead of using it to pay for something that you can get INTEREST FREE, and pay down/off in about 10 months.
Also, instead of trying to cut out your entertainment/eating out, etc. just pare it down. Try to shave off 83 per month - that’s 1k per year. Set it aside in it’s own high interest bearing account and use it to pay down his Staffords upon graduation.
7 Livingalmostlarge // Jul 28, 2008 at 9:02 pm
Right now because of the weakness of the dollar I convinced DH not to go on vacation this year. I’ve also cut our eating out, groceries, fun, and it’s all gone.
I mentioned this to others and did touch on it above, it all went to our doubling gas monthly, our heating bills, and our electric costs. It didn’t go to savings or debt because it was just eaten up with cost of living.
40% increase in natural gas this year and 30% last year. And electric has doubled in 2 years. So we’re not really spending more monthly it’s just been “reallocated”. Sigh.
8 MP - The Morphine Princess // Jul 28, 2008 at 11:08 pm
I don’t have a sense of where you guys are with your debts. Are you completely debt free with the exception of the mortgage? If so, then sure - take the loan and maintain the savings program you are doing - because, as you mentioned, the loan interest and repayment are deferred until 6 months after DH’s graduation.
If you had a “net worth” account or a spreadsheet or other info where the numbers are more clearly shown, it would be easier to give you ideas, suggestions or recommendations. As it stands, right now I don’t know where you are with your overall debts to assets ratio, etc.
9 Livingalmostlarge // Jul 28, 2008 at 11:13 pm
We have a large mortgage and $17k of student loan debt accrued over the past 2 years during DH’s MBA. That’s it.
We owe nothing else. We have $100k in retirement and about $15k in cash EF, and $5-20k fluctuating cash for tuition, home repairs, car maintenance, etc.
According to our networth it’s $232k.
11 GrnMtnGirl // Aug 1, 2008 at 2:33 am
I just wanted to say that I really like reading your blog and that this is tough. I thought I’d take a minute to share some of our options which may (or may not) be options for you to consider.
1) We don’t take student loans. But, they’re an option. A better option if they’re subsidized.
2) Pay cash and take a separate loan if necessary for house or car repairs (don’t incur any interest or loans unless absolutely necessary)
3) Get an employer to pay for you (that’s what we do for part of our loans each year)
4) Get a job as a TA or another part-time job
5) Put the degree on hold or take fewer credits.
Good luck making the best decision for you!
12 Livingalmostlarge // Aug 1, 2008 at 9:26 am
GrnMtnGirl, good options! But yes the loan is subsidized. Second, we don’t take out loans for home repair or car repairs, that’s why we save cash for them. Perhaps too much but it is why. This degree, MBA, does not really apply to a my DH’s job. He is a scientist and it’s not continuing education or anything.
He couldn’t be a TA because he works full-time. And he is already going part-time. Putting the degree on hold is not a great idea considering that we would like to start a family.
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