Jeremiah and Michelle Hooks have been struggling with debt payments on their student loans, which made it tough to make ends meet and chart a bright future for themselves and their children.
The growing burden of college-student debt is often reported as a macro-level story, with big-landscape numbers on total outstanding loans, average debt loads and default rates.
Jeremiah and Michelle Hooks of Federal Way know the student-loan story on the micro level: They’re living it. For them, the story is about their debt payments, how to make ends meet and how to chart a bright future for themselves and their children.
The couple are a guidance counselor’s dream. They went to college and earned the degrees they needed to begin lasting careers. They bought a home in Skyway and started a family. Then they sold that house and bought a bigger one in the suburbs for their three boys — a 3-year-old and twins age 6.
Jeremiah, 37, is eight years into his career as a physical therapist. Michelle, 36, is a mental-health counselor with her own practice. Their combined work income is about $112,000 a year before taxes.
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Their household finances, however, are challenging.
They owe about $338,000 on their home, as well as about $209,000 in student loans. The student debt, especially, weighs on them. “Because of our student loans, we’ve had difficulty doing things,” Jeremiah said.
“They’re living on the razor’s edge,” said Brian Lockett, vice president of Comprehensive Wealth Management in Lynnwood. Lockett and his colleague, service adviser Marc Knauss, volunteered to work with the Hooks through The Seattle Times Money Makeover program.
“They both have heads on their shoulders,” Knauss said. “Despite the loans, they are going to be successful in the long run.”
On the surface, the Hooks’ household finances are a study in simplicity.
They have a small checking account for paying bills. Every month, their bank automatically transfers $300 from their checking account to savings, which has a balance of about $20,000. The Hooks’ retirement savings consist of two 401(k) plans at former employers with a combined balance of about $18,000.
As is the case with most Americans, the Hooks’ largest asset is their house. They bought the five-bedroom home in June 2017 for $430,000, King County property records show. The market value is essentially unchanged, Zillow estimates.
Subtracting the mortgage from the value of the house leaves the Hooks with an equity stake of about $92,000. They are currently paying $2,130 a month on a 30-year mortgage with an interest rate of 4.25 percent.
Their only other debt is $3,000 for a Honda family van. They pay off their credit-card balances every month.
What Jeremiah and Michelle regret is how they financed their college educations.
After earning a bachelor’s degree in psychology from the University of Washington, Michelle decided to get a master’s degree in counseling psychology from Pacific University, a private institution in Forest Grove, Oregon. She owes about $135,000 on her student loans, largely because of her graduate studies.
Jeremiah earned an associate degree from Mount Hood Community College in Gresham, Oregon. He then attended Eastern Washington University before completing his bachelor’s degree at the University of Nevada, Las Vegas. His outstanding student loans add up to about $74,000.
In hindsight, both of them wish they had attended public, in-state institutions, to save money on tuition. Michelle noted that she could have stayed in Seattle and earned her master’s degree at UW. “I regret that I didn’t do that,” she said.
In a trend now decades old, Americans have increasingly borrowed money to pay for their college degrees.
Outstanding student loans in the U.S. hit $1.53 trillion in the second quarter of this year, an increase of 144 percent in 10 years, according to data published by the Federal Reserve Bank of St. Louis.
Thirty percent of all adult Americans have taken on some debt for their educations, the Federal Reserve Board reported in May.
Their student-loan debt made it harder for the Hooks to finance the purchase of their home in Federal Way, even with the proceeds from the sale of their Skyway house.
Seeking relief, the couple reduced their monthly student-loan payments by enrolling in the federal Pay as You Earn (PAYE) program. It allows some students with newer federal loans to cap their monthly payments based on family income. If they make their payments without fail for 20 years, the remaining balances are forgiven.
The Hooks are now paying $900 a month on their student loans. Had they not enrolled in PAYE, their monthly student-loan bill would have been about $2,300, Lockett estimated. “They would be in a world of hurt,” he said.
The Hooks made some moves to ease their debt burden: They sold a car on which they had a loan back to the dealer. Then they bought an older car for cash, eliminating a debt payment. When the Hooks sold their Skyway house, they used some of the proceeds to pay off all of their credit cards. They haven’t carried a credit-card balance longer than a month ever since.
Still, it wasn’t enough.
In April they had to buy a new dishwasher and freezer, and fix the stove. One of their cars also needed repairs. They had to pull $2,000 from savings to pay the bills.
Not long afterward, Jeremiah’s mother forwarded to him a couple of Money Makeover stories in The Seattle Times. “Well, why not?” Jeremiah recalled saying. “Let’s see what happens.” He applied.
The Financial Planning Association of Puget Sound put out a call to its members for volunteers who could help the Hooks at no charge. Lockett and Knauss stepped forward.
The two men scoured the couple’s household spending, looking for places to cut. But the Hooks had already done that. “We actually couldn’t come up with anything in the budget to squeeze,” Lockett said.
Lockett and Knauss next turned their attention to the couple’s student loans. Some, it turned out, had high interest rates.
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Jeremiah was paying 7 percent interest on a $5,700 loan, and Michelle was paying 8 percent interest on an $8,000 loan.
The financial planners advised the Hooks to tap their savings and pay off the high-interest loans. Doing so would eliminate the most expensive debt and give the couple an emotional reward, Knauss said.
The payment would also reduce their savings to about $6,000, so Lockett and Knauss told the couple to first get a home equity line of credit, which they could use for emergency cash.
The financial advisers’ next recommendation was for the Hooks to rebuild their savings to about $40,000 in three years. The money would provide an emergency reserve that could cover the family’s living expenses for six months.
To help the Hooks reach their savings goal, Lockett and Knauss suggested they deposit their money with one of the online banks, which often have higher interest rates.
Mindful of their own college experiences, the Hooks were thinking ahead about how to pay for college for their three sons.
Given the Hooks’ tight cash flow, Lockett and Knauss didn’t want the couple to embark on an ambitious savings program for their children’s educations. Instead, they suggested having a relative open a 529 tuition-savings plan that extended family members can contribute to.
The Hooks plan to follow through on all of the advice they got from Lockett and Knauss.
“I feel better, mostly because I have a better understanding on what’s going on,” Michelle said. “It doesn’t seem as overwhelming.”
Jeremiah said the experience gave them a sense of momentum and a feeling that they were in control. “I don’t feel like I’m spinning my wheels,” he said.
As a result, the couple have had their own light-bulb moments.
After one of their meetings with Lockett and Knauss, it dawned on Michelle that she had forgotten about an automatic monthly payment of $50 from the couple’s checking account to one of their credit cards. The payments had continued after they paid off their cards, and by now the account balance was positive by a couple of hundred dollars.
Michelle put a stop to that and redirected the automatic $50 payment – to savings.