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Money Matters - NPX Newsletter Fall 2017

Feel Like You're Living Paycheck to Paycheck? Here's Why.

By Tim Ulbrich, Posted 21 September 2017 in Your Financial Pharmacist Blog: Student Loans

I was reminiscing back to the time between 2012-2015 where Jess and I were throwing almost 40% of our take-home pay towards student loans. I distinctly remember the feeling of living paycheck to paycheck despite making more than $100,000 per year. I also remember the sense of frustration that this was not what I had thought I signed up for when starting pharmacy school.

It goes without saying that for many new graduates, student loan payments can make a paycheck evaporate in no time unless you are on an income-driven repayment plan with low monthly payments, are seeking loan forgiveness, or decide to take out your loan payments for 20+ years. I’ve talked with hundreds of pharmacists that describe the frustration of feeling like they are making little to no progress on paying off their loans despite making massive monthly payments.

Why is that the case? Simply put, a big debt load with interest getting in the way.

Making a Second (Big) Mortgage Payment

The average indebtedness for a Class of 2017 graduate was $163,494 (Ref: AACP Graduating Student Survey, 2017). Assuming a 6% interest rate and 10 year payback period, that would equate to a monthly payment of $1,815.12.  The interest portion alone due on the very first month’s payment of this debt load is $817.  Therefore, if you were to send in a first month’s payment of $818, only $1 of that would go towards the original balance of $163k.  Ouch.

Even if you were able to throw $1000 per month at this loan, you can see that in the early months, your balance would decrease by less than $200 per month.  Thankfully as the principal is paid down, the interest gets lower and lower but in the first few years, it can feel like you are throwing a mortgage payment (or two) but not seeing the balance go down as much as you would like.

Speaking of mortgage payments, check this out. Assuming a 6% interest rate and a 10-year payback period, the monthly payment associated with the average student loan debt ($163,494) is equivalent to buying a $380,200 home (assuming 4% interest and 30-year mortgage).  Ever wonder why pharmacists often say they feel like they are making two mortgage payments? This is why.

Want to learn how to tackle your student loans, or get a head start if you’re still enrolled as a student?  Check out the FREE Student Loan Quick Start Guide (among many other useful resources). Visit Your Financial Pharmacist Here.

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