Overcoming Debt, Achieving Financial Freedom

Chapter 3The Journey to Financial Freedom

My “Aha” Moment

It was January 2017, and I was going through our mail. One of the envelopes had “IMPORTANT TAX DOCUMENT” stamped on the front. It was the 1098‐E Student Loan Interest Statement, a tax form specifying the interest that I had paid toward my student loans in the previous year.¹ After reviewing the form and frantically logging into my student loan accounts, I came to an unnerving realization.

After graduating law school, I had a six‐month grace period until my loan repayment kicked in. Prior to expiration of the grace period, I had to select a repayment plan. I went with the “standard” option because it seemed to be the most straightforward. If I dutifully made my payments, I would pay off my loans in 10 years. Satisfied with the prospect of becoming debt‐free by age 36, I signed up for the standard repayment plan. The plan came with a $2,000 monthly payment. Yes, you read that correctly. My student loan payment was nearly double my rent. In my first year of repayment (2016), I paid $24,000 toward my student loans (12 months × $2,000 monthly payment = $24,000 total paid in 2016).

That day, in January 2017, as I reviewed my 2016 Student Loan Interest Statement forms and saw how much of my student loan payments went to the principal versus the interest, I came to the harsh realization that of the $24,000 that I had paid toward my student loans in 2016, only $4,000 had gone toward the principal; $20,000 went to the interest. ...