By Stefanie O’Connell, TheBrokeAndBeautifulLife.com
Freddy Arsenault is a Broadway actor with six figures of student loan debt, thanks to the MFA acting program at NYU’s Tisch School of the Arts. Among actors, Arsenault is one of the “lucky ones”. According to Actors Equity Association, the professional theatre actors union, fewer than 15 percent of due paying members are able to secure work in any given week and only 17,000 of 40,000 members work in a given year. Of those jobs, only a select few carry the prestige and paycheck of a Broadway show.
Even with his success though, Arsenault doesn’t have the luxury of sitting back and “living the dream”. In fact, to keep up with the cost of New York City living and his student loan payments, Arsenault also works as a real estate agent. By continually supplementing his acting income, Arsenault has been able to contribute $800 a month to his $165,000 student loan bill since graduating in 2008. Thanks to interest, however, his monthly contributions haven’t even made a dent in the amount he owes, which still stands at $165,000.
Arsenault’s story is a powerful reality check for actors, artists, freelancers, and young people everywhere who suffer from the misconception that all of their financial woes will dissolve when they “make it”. Even the “dream job” can’t serve as a panacea for fiscal hardship or erase the need for a well-constructed financial plan.
What Happens When You Don’t Pay Up?
A 2014 poll by American Theatre Magazine revealed that 17 percent of artists are paying nothing towards their student loan bills each month- perhaps operating under the flawed assumption that the big career opportunity, should it ever arrive, will serve as the answer to their five or six figure debt. Unfortunately, this policy of postponement and willful ignorance can prove quite damaging.
If you become delinquent on your loan repayment for more than 90 days, your lender(s) will report your tardiness to the credit bureaus, nose-diving your credit score by as much as 100 points. Letting that delinquency fester will only result in further consequences- like default. At that point your loans are likely to be turned over to a collections agency and your entire balance will become due immediately. If you thought $800 monthly payments were rough, try coming up with 80 grand on the spot!
Taking Back Control
Rather than dealing with debt collectors and struggling to raise five or six figures overnight to repay your student loans like some kind of Mafioso, confront your bills head on by putting a realistic plan in place.
Start by calling each lender and negotiating. Asking for reduced interest rates or lower monthly payments is a far better strategy than letting the bills stack up in the corner and keeping fingers crossed for overnight stardom and millions.
The trouble many artists run into in the construction of a debt repayment plan is finding an amount to contribute towards their debt that will actually fit within their budget. The American Theatre Magazine poll found that 67 percent of the 500 artists surveyed made less than $25,000 (if anything) from theatrical endeavors in 2013. Without a livable or reliable source of income, it’s a struggle for these artists just to get through the month, let alone make a dent in six-figure debt.
For these individuals, the Income Based Repayment program might provide a sustainable solution. The IBR program limits monthly payments to 15 percent of disposable income and extends the repayment term to 20 or 25 years. To qualify for the program, individuals must prove “partial financial hardship”, i.e. evidence that minimum payments on federal loans are more than 15 percent of their income each month- not a problem for most artists. After 20 to 25 years of making payments using the IBR program, any remaining debt is forgiven (though taxes must be paid on that amount).
Unfortunately, the IBR plan is only available for Federal loans and the extended pay back period means paying a lot more in interest over the life of the loan. Artists using IBR payments are likely to find that their contributions barely cover the interest each month and don’t even touch the principal. In other words, despite their payback efforts, the total amount owed will continue to increase each month.
Diversifying Income Streams
As an alternative, artists and other low wage earners might want to consider implementing Arsenault’s approach- diversifying income streams to make more money.
That doesn’t just mean “survival jobbing” as a waiter to get to the next paycheck. It means establishing a substantial and reliable stream of additional income to cover basic living expenses, make significant contributions to debt payoff, and save for future financial goals.
Of 7,093 theatre graduates surveyed by the Strategic National Arts Alumni Project between 2011 and 2013, 10 percent said they left the field because of debt and 26.9 percent left because of higher pay in other fields.
Committing to earning enough money to fund expenses, debt pay off, and savings breaks artists free of the short-term, stress inducing cycle of living paycheck to paycheck and gives them long-term financial sustainability- making “burnout” significantly less likely.
People go into the arts to do what they love, but the strain of student loan debt addressed with short-term, band-aid strategies can quickly turn that joy into depression and resentment. Tackling debt head on with a viable long-term strategy is not only empowering financially, but also freeing artistically in that it allows for the continued pursuit of passion.