Saturday, July 22, 2017

How I Got Out of Student Debt and Celebrating with a Sabbatical

On Sabbatical, running on a Peruvian beach.
Last week, it's official: I'm out of student debt. I'm debt free, which means I'm free. And free is free is free is free.

I'm celebrating my new freedom by taking a Sabbatical - which means I stopped working and am taking a break. It's traditionally supposed to be for a year; I don't know if I have that much saved up to go that long. But, I'm going to be gone as long as possible.

Sometimes, I want to come home, because I miss everybody and my animalitos (small animals in Spanish). But then I remind myself, you can take a Sabbatical, so you should.

I wanted to write about how I got out of student debt; in the hope that it could help others. But before I do, I think taking a Sabbatical was the best thing I could do.

The practice has Jewish origins. I didn't know this, until this year, but one of the hallmark reasons that the Sabbath was created was because the Jews were freed under Pharaoh's bondage in Egypt.

The Sabbath was meant to be a celebration and a reminder of their freedom from enslavement. Taking a break from making money also tested one's faith. It was a statement by the people of faith that what they had was enough, and that life wasn't all about making money. It was about freedom and being grateful to the God that freed them. Also, having less forced God's people to put into practice their faith, one which said that God would provide for their future needs. One was actively forced to trust in his or her own hoarding of resources. For all of the above reasons, taking a Sabbatical was a good fit for me.

Alright, back to how I got out of student debt. This is mainly what I did and here's what I learned about it. It took me about five years after graduating law school to get out of it. Law school cost about $130,000 for all three years, and it was probably about another $60,000 to live in West Los Angeles for three years. Going to law school, all up cost me $190,000. (UCLA gave me a good amount of grants and my father helped too. Roughly, UCLA paid a third, Dad paid a third, and I took out a loan for a third.)

So after UCLA and Dad, I borrowed $53,700 for three years of law school. After I graduated, that amount turned into $58,242.99 in three years, a $4,500 increase. (That's a lot, think about what you can do with $4,500).

In the end, I ended up paying $58,841.44, of which $5,141.44 was in interest. I had a $650 debt from undergrad, $119 of which was from interest of a total principle of $2,000. In total, for my entire education, I borrowed $59,500, that included my undergraduate and graduate degrees.

Getting out of debt was a challenge and certainly a testing of my own self-discipline, especially because I was learning how to start my own business, while learning to litigate at the same time. (I wish I could advise not to do that too, but law firms aren't hiring. If you're interested in me writing articles on how to start a business, write me.)

Here's what I advise, learned, and suggest. Here's are my seven points towards becoming debt free.

(1) Don't get a formal education. If you're going to go to some expensive private liberal arts college, and you're going to have debt over $100,000 forget it. You'll almost never get out of it. Also be very aware of going to a low tier law school, which charges a prince's random but has low bar passage rates. You'll also be doomed in debt, if you have over $100,000 in law school debt and can't pass the bar.

In general, I'm not advocate of going to professional school either, anymore. (Though with that said, I found my time at UCLA Law to also be priceless; I felt like I really got a first class education there.) But, the market has realized that law school may not be a good investment.

At UCLA Law, for the class of 2012, there were over 8,000 applicants. It was a record high at the time, which was broken again in 2013. Now, there's only 5,000 people applying. The market has realized that having a professional degree doesn't always pay back a return on investment. (Some older lawyers may criticize me for saying this, but believe me, they didn't have the same hardships of student loans that my generation does.)

Nonetheless, I'm a big advocate of becoming educated; so, just because I said don't go to university doesn't mean not to learn. As Mark Twain said, "Don't let schooling interfere with your education."

I recommend doing what young people do in Germany. Get an apprenticeship.

Ray Bradbury didn't get a formal education, but he did go to UCLA - to rent a typewriter at Powell Library to write Fahrenheit 451. Bradbury practiced and practiced his craft.

I don't know about medicine, but at least in California, you can apprentice with a lawyer for four years and then sit the bar. In theory, you should get better training that way, than attending law school.

(It's sad I have to say not to go to university, but currently, America is heading toward's an educational financial bubble that's about to burst. It's my view that now is not the time to go, if you're going to be burdened with excessive loans.)

So, figure out what you want to do and get apprenticed or go to a public school. Or, if you go to an expensive private one, you better graduate in some technical field - like computer science or have a full scholarship. (Another option would be to work for the government, but one can never be guaranteed of having such a job. If you work for government for ten years, your loans are forgiven. But you still have to pay taxes on it.)

(2) Don't take out the maximum amount of the loan. You're a student. Take out what you need. I knew people in New Zealand who took out huge loans to go on ski trips. No. That's a horrible investment. Take out only what you need for your tuition, supplies, rent, and food. Nothing more.

In fact, in my last two years of law school, I took out even less loans. And in my last year, I ended up returning $5,000 of loan money, because I had a windfall.

(3) Minimize costs as a student. The biggest cost you have as a student will be your rent. Don't live in a posh place to impress your friends. I lived 7 miles away when I attended law school, and I had a good friend who let me live with him at a reduced rate. (Some days, I even ran to school and back.)

(4) After you graduate, live simply. And it will be offensive to some of your friends.

After a woman crashed my German car, I bought a beater. It was supposed to be only a temporary ride, but it kept driving and lasting. The insurance and maintenance was cheaper. And I got so much flak from friends and family (except for my mother) for not buying a better car. I probably could have bought a nicer sports car, but that would have delayed me paying off my student loans.

Why have a nicer car over being free? I was in debt. I told them, "I can think about buying a better car when my loans are paid off."

I lived at home with mother, which I ended up loving completely. But people would question me: "Why don't you have your own place?" And I said, "Because, I love living at home. But also, I need to pay off my student loans." Mom's been the best to let me live with her and make my favorite coffee, aiding me in the quest to slay my behemoth of student loans. (Perhaps, Baldwin Park would fall without her.)

Not only did I stop buying new things, I also got rid of 80% of everything I owned, either by trashing it or donating it.

And guess what? It made me happier and freer, as I learned to live with less. Consequently, because I had less stuff, I greatly appreciated the little I had left even more. (I wasn't expecting this.)

In short, I had to stop caring what other people thought about my life. It was my life, and they weren't shouldering my student loans. And if that meant I wasn't cool or invited to some parties, so be it. As an unintended consequence though, I think it made my litigation better, because I was more focused on my own training, learning, and profession.

(I probably still enjoyed eating out. I wondered often if I should cut that out too. But I enjoy the company of my friends - so, I didn't let this one go.)

(5) Be creative. In my last year of law school, I was a teaching assistant for the undergraduate department at UCLA. UCLA undergrad, thus, gave me a stipend towards my tuition and this helped a lot. If you can make some side money, without hampering your law school education, I would do so and pay off your student loans. (Upon reflection, TA'ing though did hurt my grades a bit, but the amount I got paid for was a good trade off.)

Also, right before I made my last payment, I found an unopened box from 2004 from a camping equipment called REI. Everything inside was brand new, even though it was 13 years old. REI had a policy, which I was grandfathered into, that stated that if I was unhappy with their product, it was a lifetime refund. Before going to Peru, I returned it to the employee's surprise that I had something that was 13 years old. She said, "Did you do a spring cleaning?"

I said, "Yup." I smiled. I got back $80. I put it towards my student loans.

(6) Strategize. Getting out of student debt is a battle and it presses you. You need a grand plan, filled with detailed tactics.

I had a game plan. The start of creating a game plan is to make paying off your student loans either your top priority or one of them. It really had to be up there, and you have to be focused on it.

After that, create a plan. What I did was that I had six different types of loans. What I'm going to say next is obvious, but still has to be said. Pay off the largest interest loan first.

So for me, I had two unsubsidized, three subsidized, and one subsidized loans undergrad. (It gets complicated, because there was only four accounts, but six loans.) I paid off the unsubsidized loans first, because they accrued the most interest and start the day you borrow.

Your goal is to get rid of the unsubsidized loans as fast as possible, or it'll accrue and compound interest and get you. After that, I worked on paying off the subsidized loans in order of the highest to lowest interest first; that's why, even though I only had $650 in undergrad loans, I didn't pay it off. It only accrued 2% interest generally; so, it was my lowest priority to pay off.

Just make sure you plan your work and work your plan. Upon reflecting more about it, I could have saved $1,000 to $2,000 in not paying interest had I created a better plan right from the time I started law school. But at the time, you get worked to death at law school; so, I didn't have time to sit down and create a good plan.

Don't make that mistake. Have a workable and clever plan, and it really will save you money and get you out of debt faster.

(7) Finally, give to charity. Whenever I made a profit, which was almost never, but some times happened, I tithed 10% back to charity or a religious institution.

Some people abhor this idea. I can say that it teaches you self-discipline and gives you a joy in giving. I also believe in one of the verses in Psalms, 27:35 to be specific: "I was young and now I am old, yet I have never seen the righteous forsaken or their children begging bread."

That's it. That's how I did it. Hope it helps you. 

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