7 Years Later, I Owed More on My Student Loans Than When I Started Paying

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This post comes from Christine DiGangi at partner site Credit.com.

Sharon Cece made her final student loan payment last month, and, man, it feels good to be rid of it, she said. Repayment wasn’t an easy road to travel, but if nothing else, it left her with knowledge she greatly values: Borrowing money should be avoided if possible, and repaying debt can be much more complicated than you think it will be when you accept the loan.

She borrowed $10,000 in 2004 to finish her bachelor’s degree, and she started repaying it as soon as she graduated in 2006. But, like many consumers, she endured some financial hardship that made repaying the loan very difficult.

Still, when she checked the loan balance in 2013, she was shocked to see it exceeded the amount she originally borrowed: She owed $11,060.

After repaying more than $1,000, Cece hadn’t made any real progress, and she quickly forged a plan to tackle and eliminate the debt before it increased any more. Looking back, she identified three things she wish she had looked at more closely when she started repaying the loan seven years earlier. If she had, she said, she could probably have avoided the increase in her loan principal.

Monthly payments

Cece borrowed $10,000 in 2004 with a 5.5 percent interest rate, and when she entered repayment, there wasn’t a lot of room in her family’s budget, but that seemed OK because her payment was set at $51.

“I was not working,” said Cece, a mother of two. “My husband was the sole provider. The low monthly rate was the ticket for me.”

Paying only $51 a month doesn’t make much of a dent in a $10,000 loan, but at the time, Cece didn’t see it as an issue. She later realized it was a huge reason behind the little progress she made after years of paying the loan.

Forbearance

A few years after she graduated, during the economic downturn, even those $51 payments became a financial burden.

“Over a period of a couple of years, my husband had some layoffs,” Cece said. “My student loan was the least of my bills.”

With a family to care for and a mortgage to pay, she decided to put the loan into forbearance. It made sense during the tough times, but she didn’t understand the impact of her decision. Interest continues to accrue on a loan during forbearance and is added to the principal balance (known as compounding interest), which is why her loan ended up growing instead of shrinking. Over a few years, she suspended her student loan payments three times, and it really added up.

“That’s what kept hitting me,” she said, reflecting on the experience. Reality settled in when she talked with a representative of her student loan servicer, who explained how increasing her monthly payments would help with the problem.

She wishes she’d known this sooner. “I was half mad at them and half mad at myself.”

Prioritization

Even when she was able to make payments, Cece didn’t see her student loans as a top priority. It seemed less important than, say, her mortgage payment. Once she realized she wasn’t getting anywhere, she changed her attitude.

“It’s almost like a mini-mortgage, and until you understand that, you go for the least painful option, which is low payments,” she said. She had to discipline herself when it came to finances. “If I got money, I’d put it toward my student loan. I realized I never was going to get rid of it if I didn’t take it much more seriously.”

Now free from student debt and more financially savvy, Cece is helping her sons navigate higher education and encouraging them to avoid debt. She knows how easy it is to get into debt without really understanding it, and she doesn’t want her sons to go through that.

It’s crucial for students to understand how their student loan payments will impact them after graduation, and it’s often up to parents to communicate that.

Students considering loans should calculate their expected loan payments and compare them with their potential starting salaries, based on their career paths. It’s best if your total debt load upon graduation doesn’t exceed your annual income for your first year out of college, and if it does, it’s crucial to find a way to meet your debt obligations.

Late and missed payments are not only expensive because of fees and interest, it will also harm your credit, which has a huge bearing on your access to things like utilities, housing and other loan products.

If you’re repaying any loan, you should be regularly reviewing your credit reports and credit scores. To get a snapshot of your credit data including two credit scores, you can use the free tools on Credit.com.

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  • laracraftmili

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  • chief

    This is one of the most ridicules things I have read. Anyone with a bachelors degree must have some concept of interest and payments even if they chose a worthless major. It is also hard to understand how someone with a bachelors degree could not find ANY employment for years and years unless they were choosing to not work. It is almost as if she was waiting for some kind of bailout.

    • Patrick Seitz

      It’s not so unheard of for even educated people to have long periods of unemployment, particularly if she had the worthless major. But like you say, it’s unbelievable that she wouldn’t understand how interest works. When she said she was partly mad at them (her lender) and partly at herself, unless the lender was deceiving her, she really should’ve just been mad at herself.

  • Joseph Freitas

    I pay the minimum student loan payment possible as well. A few reasons why: 1. I get a tax benefit fromt he student loan interest. Granted this is capped and I do not get to deduct the full amount of interest I pay. 2. if I take the difference in the payment I would have made and add that to my 401k or my hsa instead I am getting another tax break not to mention the effect of the interest rate difference between my student loan rate and my long term investment rate.
    By dragging out the payments over a longer term I am also using inflation to my benefit over time by paying the original debt with future (less valuable) dollars.

    • Nick in Mass

      Maybe. But look at the interest you are continuing to pay and pay and pay. Wouldn’t you like to be able to spend that money on yourself/family rather than giving it to the bank every month? After all, that is why you work , to spend your hard earned money on YOU and YOUR FAMILY, not line the bank’s coffers. Think about it.

      • Joseph Freitas

        Exactly I am looking at the interest. Both the interest I pay and the interest I earn on on my investment. It’s net positive. Think about it. I borrow money at 5% and earn 7% on it. Whose pockets are getting lined? Mine!

  • Richard Hutchinson

    What can’t you understand ? When you borrow money you agree to pay the principal and interest
    every month… If you don’t pay the agreed amount the interest compounds so after awhile you owe
    much more than you did to start with… Don’t they teach anything in school anymore ??? What it
    seems is that your time getting educated was a complete waste…

  • Whitney Nelson

    I almost fell into the minimum payment trap as well, but I ran the numbers myself and found that what my student loan lender quoted as the minimum payment was a lie. The numbers I calculated were sometimes higher by $5-10.00, but there were a few loans where the minimum payment I calculated myself were two/three times bigger. Always calculate the numbers yourself.

  • gadgetcc

    Do people really think that they could go without paying any loan without having interest accumulate? Then she complains that she can’t get $51 a month because of layoffs and then gets mad because the loan goes up… and she stopped not once, twice but three times and she admits that she did not take that loan seriously! Sharon Cece sounded like a financial train wreck who failed to take responsibility for stupid decisions. That said… her post-loan-self sounds smarter than 99.9% of people.

    With so many people living paycheck to paycheck, maybe finance should be required in high-school. It seems that we are living in a bailout society where everyone expects to be able to write off debts. America should be better than this.

    BTW, I still think that universities mismanage funds. Tuitions are higher than they should be and hold just as much blame for student loan crises.