Today I’m going to tell you all about my student loan debt story. I’m joining in with my friend Robert, The College Investor, in the Student Loan Debt Movement, which is encouraging and inspiring people to take action on their student loans. He’s on a mission to motivate and inspire people to eliminate a million dollars in student loan debt. He also has a support group, a leader-board, and a $500 giveaway – all to help people tackle those student loans. Join on in!
My Student Loan Story
I’ve mentioned before on this site that I didn’t have any student loans for my undergraduate degree. Why not? Because I worked full time, went to school full time nights and weekends, and used company tuition reimbursement to pay the bulk of the cost. You can check out the full story of my debt-free bachelors degree here. And lest you think I’m a boomer or early Gen – Xer who went to college back in the olden days of the 70’s or 90’s, I graduated from college in 2003. Based on the current prices for the same two schools I went to, you could do the exact same thing successfully today. The annual full-time cost for my old community college is $4,300, and the tuition cost for my public state college is $5,000 per semester. Total cost would be $28,000 for all four years. Did you know, for example, that UPS will reimburse up to $25,000 in tuition costs? Out of pocket cost to you would be $3,000.
Why did I go this route, rather than getting some nice student loans to see me through? I couldn’t get student loans. My parents refused to complete the FAFSA, meaning that I could get no aid. And of course if you’re a teenage or early 20’s student, even if you’ve moved out and are providing all of your own support, the government essentially doesn’t believe you. So although my income would have likely qualified me for Pell grants and such, I couldn’t get them. So my debt-free bachelors degree was partially out of desire, and partially out of necessity.
My graduate degree was similar – for a while. I used company reimbursement to get my MBA. However, in 2010 I ran into a snag. I changed companies, moving from one that offered tuition reimbursement to another. My new company of course didn’t reimburse the semester I was in, and had a waiting period to apply for reimbursement of courses. So there was a year I didn’t qualify for reimbursement.
How to deal with this? Why, student loans, of course. I figured it wouldn’t hurt to take out a small student loan to tide me over. Oh, did I mention how my husband was out of work at this time? So we could certainly use that extra money. So I signed up for a student loan, and went on my way. It wasn’t that large in comparison to my income, and I figured I could easily pay it off using my final reimbursement and my annual bonus.
And that was true, I could – and did. I had the loan paid off only two months after I finished my MBA. My first payment wasn’t even due yet. However, during that short time I developed quite a hatred of the things.
Why I Hate Them
Even though my experience with student loans was short, I found I hated several things about them:
- Interest accruing while in school – Some of my loans had deferred interest, but some did not. Watching them grow while in college was highly annoying
- Interest capitalization – I actually didn’t realize this happens. Fortunately I paid off my loan before this occurred, but I thought it was ridiculous. After going to school, and having the interest grow, they add the interest to the balance of your loan? So they can charge you even more interest? Horrible.
- Ridiculous Interest – These loans are 5-6%! It’s terrible how much interest you’re charged, even if you’re a good credit risk. I remember what finally spurred me to use my savings to get rid of the loans was seeing how much in interest I was paying every day. I got so annoyed I just wiped it out.
For others, I see some mistakes I didn’t make – and I hope my three boys don’t make. Sadly, many parents don’t know how to wisely manage student debt. And so they can’t help their kids make smart decisions. Students end up taking on too much debt, for the wrong reasons, and can end up unable to pay the loans back. Mistakes include:
- Too Much Debt – The general advice is to take out as much in debt as you’ll make your first year out of college. I would suggest that’s high, and you and your kids should strive for a lower number if at all possible. Taking on too much debt puts a high burden on young adults, and can delay some of the “traditional” passages of adulthood like homeownership
- Debt For The Wrong Reason – At times, people take on debt, but then never finish their degree. Then they’re stuck paying off loans without the benefit of a degree to show for it. Or they take some extra loans to pay for wants and fun things (spring break!!!) and not strictly for an education. It’s fun at the time, but they pay for it later.
- Ignorance of How They Work – There’s cases like my ignorance of interest capitalization, but also the differences between federal and private loans; ins and outs of the various programs available (and the pros/cons of each), and so on. Many kids just sign on the dotted line and figure it will work itself out later. Unfortunately, though, it doesn’t work that way
- Letting It Ride – This is where they pick the longest repayment period, pay only the minimum, and just generally stick their heads in the proverbial sand. In this situation, students will often put their loans into deferment or forbearance whenever possible. The loans coast, or grow, or just slowly inch down over decades. These folks may still be paying student loans when their own kids go to college.
My hope is that by making my college compact with my three boys, and having open, transparent conversations about how loans work, I can help them to graduate college ideally debt free. If not totally debt free, they should have only a small amount of loans and will fully understand how they work. I look forward to filling out the FAFSA – not because I think my kids will get any grants (they won’t) but because it’s something I can do to help them in their own college journey.
Join On In!
I hope sharing my student loan story, and talking about some of the perils and pitfalls I hate about student loans, has helped motivate you to take action. Join on into the College Investors challenge to eliminate a million dollars in student loan debt – and win prizes – here.
I Want To Know
What do you hate about student loans? Are yours gone now, or are you still working on paying them off? Let me know in the comments!
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8.5% interest here – watching that accrual was what spurred me to pay them off so quickly, so I guess that was a bonus? And the FAFSA situation is seriously frustrating. I understand the goal is to protect against those looking for loopholes, but it really screws the kids that need that support.
It sure does! I’ve seen other parents online have the same thought and it really hurts the kids
I’ve seen that more often than I’d like in some of the debt free groups. My parents didn’t pay for all of my schooling, but it certainly was enough to ease the blow.
My husband and I had nearly $200,000 in combined student loans from grad school. I use my degree, and he doesn’t. Ironically, we cash-flowed the degree he actually uses–his second career. We paid off all the private loans but still have about $55,000 in federal loans consolidated at 1.625% in the mid-2000s, about $200 each a month.
I dislike how long paying off those private loans set us back in buying a house and investing. I also hate how long we have to pay on the remaining consolidation loans. But it’s hard to justify paying back at 1.625% so we’re just letting them ride. Any advice?
So I generally hate debt, and eliminate it as soon as possible. I’m working on paying off my mortgage even though mathematically I would be better off investing. If you have other high priority items you’re working on, then the rate is low enough where it’s not going to make much of a dent in your financial future. But if you hate debt and don’t have something else specific you’re working on, I would pay it off
Appreciate your input! We are definitely in some analysis-paralysis mode here.
I have just over 22k in federal loans. I’m invite the income based repayment plan and I make sure to pay the accrued interest every month. Is this a good strategy?
There are too many unknowns to say. What’s your interest rate? What other financial priorities do you have?
The interest rates are the thing that outrages me the most. If we really value education as much as we claim in this country, then you’d think we’d at least find a way to lower those. We lend money to buy houses at 3.5%, but for education it’s 7 or even 8%? Ridiculous….
Economically from a banks view, it makes sense to me. After all, with a house or car you can repossess it and sell if someone doesn’t make payments. You can’t do that with a student loan. But from a societal point of view, I agree it should be more affordable to get a higher education. Interest can be subsidized, and colleges could do a lot more to keep costs down than they do.