Managing Student Debt Can Teach College Grads Key Lessons

By George Erb
The Seattle Times

WWR Article Summary (tl;dr) This article takes a look at 27 year old Leigh Hammel’s experience dealing with student debt. When it comes to women and money, debt management skills are essential these days. There is help out there, in this case Hammel asked for advice, and the Puget Sound Chapter of the Financial Planning Association put out the call for a volunteer financial planner. 


Twenty-seven-year-old Leigh Hammel has a graduate degree and a full-time job in one of the nation’s most vibrant metro areas.

So what’s not to like?

Student debt.

Hammel graduated with student loans that now have a combined outstanding balance of more than $80,000. She expects to earn about $70,000 this year, but now her student-loan payment is scheduled to triple from $400 to about $1,200 a month because of Hammel’s bigger salary and her separate decision to increase her debt payments.

“It makes me a little nervous,” Hammel said. “I know it’s doable, but it will definitely make things tighter.”

Hammel is starting her career as a member of a large group of young adults with negative net worth because of student loans.

For this generation of college graduates, debt management is an essential rite of passage to adulthood.

Those under 45 are more likely than members of previous generations to finance their college educations with debt, according to a national survey by the Federal Reserve.

Fifty-eight percent of those under 30 with bachelor’s degrees borrowed money to pay for them, the 2014 survey found. And 54 percent of people in the same age group with graduate degrees financed their advanced studies with debt.

A separate study by the Federal Reserve Bank of St. Louis found that the median net worth of households with student loans is 36 percent that of households free of college debt. That study was based on 2009 data; since then, college degrees have become more expensive.

Hammel borrowed about $10,000 to complete her bachelor’s degree in geology from Stanford University. Her debt really ballooned in graduate school.

In December 2013, she earned a master’s degree in international environmental policy from the Middlebury Institute of International Studies at Monterey, Calif.

Hammel graduated with eight student loans totaling $92,564, with an average interest rate of 6.57 percent. She has since whittled the outstanding balance down to $82,290.

Luckily for her, Hammel landed a good job in Seattle as a program manager for MedBridge Inc., a provider of online education programs for health care professionals. She earned about $58,000 in 2015. This year her income could reach about $70,000.

Despite her above-average income, Hammel’s net worth is solidly in the red because of her student loans. She also owes $280 a month on a car loan.

Her assets don’t come close to offsetting her debts. She has about $5,000 in two individual retirement accounts, and she just signed up for her employer’s 401(k) retirement-savings plan.

A negative net worth is not unusual for young adults who are recent college graduates. It’s also not necessarily worrisome. After all, they have a lifetime to build wealth and get their debt under control.

Still, starting out with a lot of debt can affect their decisions, such as making major purchases or getting married, studies show.
Hammel makes ends meet by living with her boyfriend in his Seattle house and sharing household expenses.

“It helps a lot,” she said. Were it not for their shared living expenses, “I wouldn’t know what I would do.”

Hammel asked for advice, and the Puget Sound Chapter of the Financial Planning Association put out the call for a volunteer financial planner. Mark Bergeron, president of WLFB Inc. in Kirkland, raised his hand. He looked over Hammel’s finances.

“They don’t have hardly any money to save because they’re paying off debt,” Bergeron said of Hammel and her boyfriend. “You can’t spend it and save it at the same time.”

The first order of business was reducing Hammel’s student debt.

After doing some searching, Hammel found online student lender CommonBond. One of the New York company’s refinancing products let Hammel consolidate her eight student loans into a single loan with an interest rate of 5.1 percent, saving her money on interest.

She also increased her monthly student-loan payments. If Hammel sticks to her plan, she expects to pay off her student debt in five years.

Hammel also began tracking her spending on the personal-finance website The exercise made her more aware of where her money was going. One revelation was how much she was spending in coffee shops and restaurants. As a result, she is eating out less often.

Because Hammel had no emergency reserve, Bergeron urged her to establish a line of credit with a bank so that she would have a backstop for unexpected bills. Having a credit line, and using it, would also help Hammel establish her creditworthiness.

And even though Hammel is young and healthy, Bergeron advised her to get life insurance and prepare a will, just in case.

Meanwhile, Hammel is focused on paying off her student debt, tracking her spending and saving with her employer’s retirement plan. If she doesn’t stray from her plan, Hammel’s net worth should flip in a few years from red to black.

Young adults starting their careers are often light on assets and heavy on debt, especially student debt. But that doesn’t mean they can’t save.

“If you live under your means, you always have means,” said Mark Bergeron, a registered investment adviser and president of WLFB Inc. in Kirkland.

Young people employed by companies with 401(k) programs should sign up for the retirement-savings plans, he said.

They should also put money into a separate savings account that doubles as an emergency reserve for unexpected expenses.

In both cases, young workers develop the savings habit and build wealth over time with years of compounding interest.

“Pay yourself first,” Bergeron said.

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