By DEB HIPP
A few months ago, I had a fleeting moment of joy when I noticed that my student loan balance had finally dipped below $40,000.
However, my excitement evaporated when I realized that even though I had paid more than $30,000 on my student loans over the past 10 years, my $46,000 balance decreased by only around $6,000 in that time.
What's worse is that I'll be paying this debt until I retire - and it all started more than 30 years ago with a $1,500 student loan.
Where it began
I took out my $1,500 student loan in 1984, when I enrolled in a trade school travel and tourism course. Then I got another $1,500 loan a couple of years later to pay for some college classes. When I returned to school nearly a decade later to finish my bachelor's degree, I tacked on another $20,000 in loans.
That was $23,000 total in student loans, a few thousand dollars less than the current student loan debt average of $28,950 according to The Institute of College Access and Success.
But a combination of financial hardship, lack of financial-savvy and interest accrual over a couple of decades caused my student loan debt to balloon over $46,000.
Rather than chastise myself for not being a better money manager in my younger years, I'd rather share with others what I've learned about how to responsibly manage my student loan debt.
Mistake #1: Going into default.
After I completed my tourism course, I found out that travel agents don't make much money. My salary barely exceeded minimum wage, so I couldn't afford my $100 monthly student loan payments, which I paid sporadically.
Instead of calling the lender to work out a new payment plan, I assumed I couldn't afford any payments at all. My loans went into default after a few years and gained additional interest charges. By 1994, my balance ballooned from $3,000 to $8,000.
What I did right: Two years after my loans went into default, I contacted the lender for a payment plan to get out of default. This eventually helped my credit and allowed me to receive future student loans.
Mistake #2: Borrowing more than necessary.
When I returned to school full-time in 1997, I needed two more years of college to earn my bachelor's degree.
Over two years, I worked full-time until my senior year of college and also received a $1,000 scholarship. However, I still borrowed $20,000 in student loans when I actually could have paid my tuition, bought textbooks and even had a few bucks to spare with just $10,000.
The reason I over-borrowed is because I told myself that I needed extra money in case of emergencies. Also, I'd been working at low-paying jobs for so long that borrowing cash to buy new clothes or dine out more often was hard to resist.
What I did right: I didn't take advantage of every loan offered by the university - if I had, I could've ended up borrowing even more. I also only took out low-interest federal student loans rather than private student loans, and the interest was deferred until I finished school.
Mistake #3: Putting repayment out of my mind.
Student loans can be easy to get - your lender won't check your credit for most federal student loans - and $5,000 may not seem like a huge amount when you're receiving it.
But these loans add up over the course of your degree and the next thing you know, you're $20,000 in debt. And that's before interest kicks in.
I knew I'd eventually have to pay back those loans, but I didn't research what my monthly payments would be, how much interest I'd have to pay, and the total cost of paying off the loan in 10 years versus opting for a graduated repayment plan.
According to my summary of estimates in 2003, if I'd chosen the standard payment plan (120 payments over ten years for a total repayment of $48,000) rather than the graduated plan (240 smaller payments over 20 years for a total repayment of $64,000) when I consolidated $35,000 of loans in 2003, I might have saved around $16,000 on repayment.
What I did right: After I finished my degree in 1999, I was lucky enough to get a good job as a newspaper reporter, and in 2003, I consolidated all my loans into one repayment plan at the lowest interest rate available for older loans.
Mistake #4: Continually taking forbearances.
My journalism job wasn't enough to cover the student loan payment of $198 a month for my combined loans on top of living expenses. So I took forbearances, where you postpone payments for a period of time but interest continues to accrue and your principal remains the same.
It's important to note that your lender decides whether or not to grant forbearance at its discretion, and you need to go through an application process and meet eligibility criteria in order to be considered. For example, you may be granted forbearance if you're performing a teaching service that would qualify for teacher loan forgiveness or you're serving in a national service position for which you received a national service award.
Over a ten-year period, I postponed my payments a number of times and my debt continued to balloon. At the end of the 10 years, my student loan balance had mushroomed from $35,000 to $46,000 after a decade of interest accrual without regular payments.
My lender then determined that I no longer qualified for forbearances, so I had to make regular payments.
What I did right: Necessity forced me to learn to manage money better and become more frugal - and after I ran out of forbearances, I never missed a payment. I also deducted as much student loan interest as allowed on my federal income taxes.
Like many people, the only way I could finance my education was to take out student loans. My education enabled me to land a well-paying job so that I could eventually build excellent credit and buy a house, which made the debt more tolerable.
However, if I'd made better choices would likely have eliminated my student loan debt long ago.
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