About a year and a half ago, Joe Mihalic realized he had a problem. He had a great job, friends, an education, his health — and a monthly student-loan payment of $1,100. Though his parents were in a position to cover his undergrad education (“I was really lucky,” he explained) and he started a good job at a computer manufacturer after college, he had bigger aspirations that included graduate school at Harvard, which led to $101,000 in total debt after two years of school.
But we’re not sharing Joe’s story as a bad example. He paid off the debt in just seven months by making some serious changes to his lifestyle. We spoke to Joe about his experience, the price of college and grad school and how he tackled the debt.
“Back in August of 2011, I was slowly coming to the realization that I was spending way too much of my monthly income on student loans,” Mihalic told us. “I went online and saw what I had paid so far and realized I wasn’t thinking of interest. With the amortization of interest, it’s shocking how little of a dent you put into it in the first few years.
It was so much money and there was so much more I could be doing with it. I felt dread. I was feeling trapped. I had committed to having a $1,100 payment a month.”
He was also living a lifestyle that wasn’t necessarily beyond his means, but was certainly not cheap. At Harvard, he had friends who had family money or expected to land a high-paying job to pay off their loans, so spending a great deal of money wasn’t a big deal for them. Even when he was back at home in Austin, he felt pressure to “keep up with his friends,” he said. “Looking back, they were probably doing things on credit or depleting savings, but I didn’t know that then.”
When Joe started thinking about the future, including a potential career change and the possibility of starting a family, he knew he needed money and that his plans would be impossible with a large monthly loan payment. “I decided to pay my loans as soon as possible,” he said. “I set up an arbitrary deadline of 10 months. I cashed out my life savings” — which were in a retirement account, forcing him to pay a tax penalty — “and stopped doing things like going out to dinner. I sold my motorcycle and my second car. I paid off the debt at the end of March (of 2012).” Mihalic says he’s now much better off financially than he was before he started paying off his loans, with a net worth far higher than it was before his project.
Mihalic wanted to go to grad school to help his career. “I was working as a supervisor in a factory, assembling desktop computers,” he said. “But the goal — the dream job for someone working at the factory — was to move to a job in marketing at my company.” Most of that team, he explained, “had MBAs, they got their degrees studying part-time. But part of me wanted to take a break from the business world and study full-time.”
Getting that degree at Harvard made a huge difference for him. He has a new job at a different computer company now, and he said that “wouldn’t have been as easy to get” without his degree. “That’s to say nothing of the actual experience — the people you meet, learning from professors at the top of their field. What bothers me is when people pay $90,000 for a third-tier education. A college degree doesn’t mean as much as it used to — it’s more about the program and the return on investment. You have to graduate and make money that lines up with the cost of your degree and how much money you’re going to be making.”
Instead of going out and spending money, he said, “I read, I blogged. I hiked with friends. I did things in my town instead of traveling. And once I accepted the fact that I wouldn’t be acquiring a lot of things, it was very freeing. After a while, it was easy to sell things and stop buying things.” He knew his mindset had changed when he needed a new desk chair. “I remember having to replace the chair for my desk — all that blogging. It cost about $100 to buy a chair, but I ended up in the hardware store, spending about $3 on a new wheel instead.”
He also has a good sense of the reality of his situation and how it’s not right for everyone. “I had no money in the bank after I paid my loans,” he said. “On the one hand I felt really good, but I knew that if anything had happened to me — a car or home or health emergency — during that time, I would have had to go back to my parents for financial support.”
So when his balance reached zero, “I wasn’t even that excited, it was like alright “you’ve got no money, now it’s time to start saving again.” I was stressed because of the debt, then my stress went up when I was rushing to pay it off, but now it’s so much lower. When your financial goals are about early retirement and not acquiring stuff, it removes the stress.”
If he had it to do over again, he would. But instead of adopting his big-spending ways after grad school, “I would have immediately jumped into a frugal lifestyle,” he said. “I would immediately start paying down loans. It’s hard once you get into a lifestyle to give it up. I want to reiterate what I said about really paying attention to the school and the program and making sure your earning expectations line up with any kind of loans you consider taking out.”
“I do get backlash on this suggestion,” he explained. “I don’t mean don’t study art or don’t study English, just don’t pay an arm and a leg for it if you’re only going to get back your arm when you land a job. I’m not an expert on this, but one idea is consider community college. If you’re really interested in a degree, knock out some classes on the cheap that way.”
What’s next for Mihalic? “Early retirement — at 45 or 50,” he said. To get there, he “saves more than 50 percent of my income because there’s nothing that I really want. I’ve been investing a little more. It’s really about maintaining a frugal lifestyle.”
You can read more of Joe’s story on his website, NoMoreHarvardDebt.com.