Today I’m sharing a story from Penny. Her family of six lives on just $53,000 a year, and $22,000 of that goes toward student loan debt. Here is her account.
Dear Readers of Making Sense of Cents,
I’m Penny. I co-write a blog with my cousin, Rich — it’s called Penny and Rich. He’s wealthy, I’m not. I’m a stay-at-home mom of four. Our household income is about $43,000 a year, and my husband and I currently carry over $153,000 in student loans. Rich is a busy professional with a household income around $250,000 and is well on the path to becoming a millionaire. Our blog is how we try to communicate and understand one another, financially and otherwise.
We accumulated this substantial student loan balance when my husband returned to school to become a chiropractor. He’s been practicing for nearly six years now. The practice is growing each year, but building a business has taken far longer than we expected.
We don’t regret the loans — we value having me at home with the children and prioritizing family time over immediate earnings. Honestly, living with the debt isn’t the end of the world.
Rich doesn’t understand how our family of six survives on such a modest income or how we plan to tackle our student loans. So here’s how we intend to do it. Maybe you’ll make sense of our approach (shout-out to Michelle!).
Our 10-Year Plan to Repay $153,000 in Student Loan Debt
In short, we plan to put $22,000 toward the loans each year. The breakdown looks like this: $1,000 is withdrawn from our checking account automatically each month (totaling $12,000 annually), and we apply an additional $10,000 from our tax refund each year. This strategy should allow us to fully pay off the balance in about 10 years (the spreadsheet I created is an estimate; I didn’t model daily-compounded interest in detail).
Right now it often feels like we’re throwing money at a wall because a large portion goes to interest. We must pay roughly $812 per month just to prevent the principal from growing. Over the 10 years, interest will still add up — we expect to pay more than $55,000 in interest alone.
We attempted to refinance the loans — something many fiscally savvy people pursue — but lenders declined because of our debt-to-income ratio, which makes sense from their perspective.
We’re currently on an Income-Driven Repayment Plan. Under that plan our required payment is:
$0
Any remaining balance would be eligible for forgiveness after 25 years. That sounds appealing, but there’s a major catch: the forgiven amount would likely be taxable.
For example, if our income remained around $43,000 and we paid $0 for 25 years, accumulated interest could grow the balance to roughly $716,865. Using a tax estimate, we could owe about $229,545 in taxes on that forgiven amount — which is about $9,545 more than what we’d pay by following our 10-year repayment plan. Beyond taxes, we feel it’s our responsibility to repay what we borrowed.
How can you afford to pay $22,000 a year on a $43,000 income with four children?
First, let’s review how we spent money in 2016 and explain the numbers.
Your first question is probably:
How did you spend only $528 on food for a family of six?
We receive food support (SNAP) because of our income level. I’ll describe this more below, but that assistance covers a significant portion of our groceries and allows us to redirect more cash toward student loan repayment.
Where are those student loan payments in your budget?
I like to separate the loan payments in my head — and in this post — because technically under our repayment plan we’re not required to contribute. That makes the payments feel like a voluntary, extra item even though they aren’t truly optional.
In 2016 our spending looked like this:
$31,942.03 in regular living expenses
+$22,000.00 in student loan payments
= $53,942.03 total
That total exceeds our annual income, but here’s the second part of our strategy: we receive a substantial tax refund each year.
Our 2015 tax refunds were:
- $7,321 — Federal refund
- $2,655 — State refund
- $2,006 — Property tax refund
$11,982 — Total refunds
Add that to our $43,000 income and we’re working with approximately $54,982, which covers our total spending for the year.
Here are charts showing our 2016 spending breakdown (images were included originally):
And here’s the same chart with the student loan payments added:
It looks daunting, but that’s why we have a 10-year plan.
About Food Support
We’ve received food assistance for about eight years — starting when my husband entered chiropractic school. We could have qualified earlier, but I didn’t realize it was available when my husband worked as a Catholic elementary teacher earning only $18,750. At first I felt embarrassed about accepting assistance, but over time I’ve come to accept it with gratitude. It’s enabled us to prioritize loan repayment and stabilize our household without sacrificing our children’s needs.
Could we manage without assistance? Yes. Do we direct what we save on food toward our student loans? Absolutely. Is that fair? I believe so.
I recently read The Art of Asking by Amanda Palmer, which includes a passage about Henry David Thoreau receiving donuts from his mother while writing Walden. The image of Thoreau as a self-reliant hermit eating someone else’s donut feels contradictory to many people’s expectations, but it highlights an important point: being supported doesn’t nullify our efforts or worth.
It’s not the act of taking that’s so difficult, it’s more the fear of what other people are going to think when they see us slaving away at our manuscript about the pure transcendence of nature and the importance of self-reliance and simplicity. While munching on someone else’s donut.
I’m not trying to produce a literary masterpiece — I’m raising children while my husband grows his practice — and I’m learning to accept the support when it’s available. Accepting help can be humbling and human. It’s both a gift to give and a gift to receive.
I’m slowly coming to terms with being low-income in many respects, but I don’t feel deprived. We live in ways some might associate with more affluent households: our children attend private school on scholarship, we aim to eat healthy organic foods (with help from food support), and we own our home thanks to family help with the mortgage when we bought.
Should my life look different to fit a stereotype of poverty? Or should I gratefully accept the help and use it as intended? I choose to accept the help and make the most of it.
Many people, like my cousin Rich, worked hard to get where they are. But lots of different people work hard in different ways — and sometimes luck and circumstance play large roles. Conversations across economic differences help us understand each other better. Rich even wrote a parable about how our differences make the “forest” a richer place.
We belong to each other, and supporting one another is important.
Our first job in life is to recognize the gifts we’ve already got, take the donuts that show up while we cultivate and use those gifts, and then turn around and share those gifts — sometimes in the form of money, sometimes time, sometimes love — back into the puzzle of the world.
Our second job is to accept where we are in the puzzle at each moment. That can be harder.
Our situation is uncommon: not many people earn $43,000 and choose to put $22,000 a year toward student loans. I hope to move to a place where I can share more of my resources and need less. Until then, I think honest conversations about money, priorities, and our roles in the community are valuable. Low-income voices are underrepresented on personal finance blogs — I want my cousin and you, the readers, to better understand what our reality looks like.
Along the way we all might learn from one another.
Thanks for reading,
Penny
Do you have any questions for Penny? What are you doing to pay off your debt?