Don’t Mess with Student Loans: Our Story

Here it is, folks. I am posting our actual debt numbers for all to see. Acknowledgment and awareness is the first step in recovery, right? Our official credit card debt totals $36,950.92 split between 3 cards. (Which are now cut up, thank goodness!) This staggering number is worrisome. However, our biggest problem by far is student loan debt. As of today, our student loans total $138,140.08. This is a very, very scary number. We are not doctors, we are not lawyers. This student loan mess is a result of bad decisions and a consolidation, followed by many years of forbearance and ignoring the problem. I am posting this so that others can learn from our mistakes. So, how did our student loans get so out of control? Let me tell you . . .

When my husband and I first met, we both had student loans. Mine was approximately $20k from getting an associate’s degree at a private art school. My husband’s student loan was $40k, also from a private school, but he has a bachelor’s degree. We were both single parents when we met ten years ago. I was paying my minimum payment and my husband was on default on his loans. When we decided to confront the defaulted student loans a few months after getting married, we were shocked to learn that the interest on his student loan shot up to almost 10 percent. LESSON 1: DO NOT GO INTO DEFAULT ON YOUR STUDENT LOANS!

The minimum payment on the student loan was unaffordable for us, so we signed up for a repayment plan that was income contingent. This was a good move, but the payments were still a lot of money and the interest rate was very high. We had three kids and one on the way at this point and we were living in an 800 sq ft two bedroom apartment. I quit my job to stay home with the kids, so we lost some of our income as well. (It was actually not that much of a loss – more than half of my income was going towards daycare expenses anyway.) At this time, we received a very generous financial gift from a relative. We used it for a down payment on our first home. Big mistake! LESSON 2: USE ANY UNEXPECTED FUNDS TO PAY OFF DEBT AND/OR ADD TO SAVINGS – DO NOT BUY THINGS THAT YOU CANNOT AFFORD!

That down payment money would have paid off a large chunk of that student loan debt. We did not have any savings at that point either. We could have “moved up” to a 3 bedroom apartment after the baby was born, but no – we bought into the American dream of owning a home. Of course, it was an older home that needed fixing up, so our monthly expenses went up as well. The baby came, and now we were a family of six. We started using credit cards for essentials like gas and groceries. Things were starting to get out of hand financially. We put the student loans on forbearance for a few years. In order to do this, you need to send the bank holding the loan your income information to prove that you are financially unable to pay. The problem lies in the interest. When a student loan is in forbearance, it continues to gain interest – and it grows!

After a few years of being in forbearance, our student loans grew to about $80k. In desperation now, we read somewhere that consolidation would be a good idea and we would be able to get a lower interest rate. My student loan had an interest rate of about 3 percent. We thought that if we consolidated my husband’s student loan with mine, the interest rate would be at 3 percent for all of the loans. Wrong! LESSON 3: DON’T CONSOLIDATE YOUR STUDENT LOANS UNLESS YOU WILL GET A CONSIDERABLY LOWER RATE ON BOTH LOANS. READ THE FINE PRINT!

What they did is combine the rates and give us a new rate of 6.8 percent. This had to have been one of the worst decisions we have ever made financially. Now the new payment was as unaffordable as ever, and the student loan remained in forbearance. We continued to ignore it. As David Bach mentions in his new book, Start Over, Finish Rich: 10 Steps to Get You Back on Track in 2010, “Doing nothing is the worst choice you can make.” How true! As of today, our original student loan totals over $125,000! This is completely insane.

I decided to go back to school full time in the spring of 2007 when our youngest was about to start kindergarten. I tried to get the student loan deferred, which would stop it from growing. Since it is a consolidated loan, my husband would also have to be a full time student in order to get a deferral. Ugh. Another financial blow. I now have new student loans that total about $13k. I did get quite a few really good scholarships. I buy my textbooks used from Amazon, or I find them at my local library and renew them until the end of the term. The hope is that someday I’ll be able to earn more money with a bachelor’s degree. That has yet to come to fruition, but I am hopeful.

After going over this student loan information one more time, I realize that the minimum payment on this huge loan, which is $775, must come before paying the credit card minimums. That student loan is growing like a snowball rolling down a mountain. Dave Ramsey talks about the “debt snowball” – this is the debt snowball in reverse. Very scary and very dangerous. I am going to stop it in it’s tracks. You are going DOWN Sallie Mae! It will take a LONG time, but I am not letting this thing continually grow any longer. Just watch me kill it, readers! If you learn nothing else from this post, try to avoid student loans if at all possible. If you have student loans, keep up with the payments at all costs. If you don’t, it could cost you – big time.

If anyone out there is having a problem with huge student loans, check out the information about the new Income Based Repayment (IBR) plan. I plan on checking this out today. I’ll keep you posted!


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