Eight Student Loan Lessons

Eight Student Loan Lessons

Going to college, I didn’t plan to leave with a lesson in student loans.

I often think of the things that I would do differently if I did the whole college and student loan thing over. Since I can’t turn back the hands of time – I choose to change those regrets into lessons. In my opinion, expensive lessons but they are lessons nonetheless.

“Lesson – Something learned by study or experience” – Miriam Webster Dictionary

Going to college wasn’t free for me and honestly it wasn’t something that myself or my family financially prepared for. However, I still decided to go to college after graduating high school – everyone I knew seemed to either go away to college or enlisted in the military. Both of my brothers and two of my cousins enlisted in the Marines when they graduated high school but I selected the college route. I decided to go to a two year technical college first and figured, I would figure out the rest out later. When enrolling in college, I soon realized that college was expensive and I didn’t have enough money to cash flow college. Therefore, I was directed to the financial aid office for a solution to pay for my classes. The answer was, 18-year-old Jackie, signing on the dotted line for student loans.

However, one thing I did know was that by receiving loans, I would have to pay them back. At 18, I may have not been well educated in student loan debt but I knew that taking out a loan was a debt and therefore that debt would have to be paid back.

“Debt – something, typically money – that is owed or due”

This is my story of lessons learned while getting a handle on my federal student loan debt and learning how student loans payments are applied. All of my loans were either direct subsidized or direct unsubsidized student loans.

A couple of terms to know:

What is a Federal Student Loan?  A federal student loan is a student loan funded by the federal government.

There are two types of federal loans: Direct Subsidized and Direct Unsubsidized.

What are Direct Subsidized Loans?

• Direct Subsidized Loans are available to undergraduate students with financial need.
• Your school determines the amount that can be borrowed, and the amount may not exceed the student’s financial need.
• The U.S. Department of Education pays the interest on a Direct Subsidized Loan
  • while you’re in school at least half-time,
  • for the first six months after you leave school (referred to as a grace period), and
  • during a period of deferment (a postponement of loan payments).

What are Direct Unsubsidized Loans?

• Direct Unsubsidized Loans are available to undergraduate and graduate students; there is no requirement to demonstrate financial need.
• Your school determines the amount you can borrow based on your cost of attendance and other financial aid you receive.
• You are responsible for paying the interest on a Direct Unsubsidized Loan during all periods. Meaning interest is accruing on those student loans from the time the loan is taken out until it is paid off.
• If you choose not to pay the interest while you are in school and during grace periods and deferment or forbearance periods, your interest will accrue (accumulate) and be capitalized (that is, your interest will be added to the principal amount of your loan).

What is interest or interest rate on my loan? Student Loan interest is the most expensive thing ever! Ok seriously, student loan interest is how much the borrower pays to the lender for the loan. On my student loans, the interest is charged daily! Yes, EVERY DAY!

Now that we have covered part of my backstory and a few definitions are out of the way, let’s dive into the eight lessons learned.

Lessons Learned

Lesson #1: Taking out more student loans than I needed. Plain and Simple right?

When I was in college and I was awarded a student loan, the college would take the tuition out of the loan and send me a check for the remaining amount. I distinctly remember reading that I could return the money to the college if I didn’t want it. However, how many 18 year olds do that? I know this one didn’t. I can even remember what I bought with my first refund check – a Sony Vaio desktop computer from Circuit City during a Black Friday sale. (I know I am aging myself with that example but its what I bought) Therefore, the refund check wasn’t totally blown on non-related college items but I can assure you all the refund checks that I received weren’t for college related expenses or even necessities – so my first lesson with student loans was taking out more student loan debt than  I actually needed.

Suggested fix: Return any excess money to the student loan company via your college or by making an immediate payment on your student loans in the amount of the overpayment.

Lesson #2: Not making payment on my student loans while enrolled in college. This lesson is pretty cut and dry. I took the student loans out but since I wasn’t receiving a true bill in school, I didn’t worry about paying on my loans during that time. I did receive statements in the mail, showing a balance but since I was still enrolled in college the statement would read that nothing was due.

Suggested fix: Treat those statements as a bill that is currently due and make a payment on student loans while still in college if possible.

Lesson #3: Not paying on student loans while not enrolled in school. To piggy back on Lesson 2, I also didn’t pay on my student loans during the 6 month grace period post college or periods of not being enrolled in college.

Suggested fix: Make payments on student loans during the grace period or periods of not being enrolled in college.

Lesson #4: Electing forbearance or deferment when I didn’t need to. Post graduation, for approximately two years, I elected forbearance or deferment because honestly the income wasn’t there to pay the bill. However, the fix would have been to make more money even if it was a second job to cover the bill.

Suggested fix: Earn more income to pay my student loan bill. Don’t allow forbearance or deferment to be an option.

Lesson #5: Electing the Income Based Repayment (IBR) plan and staying on the IBR plan for 2 years. This had to be one of the most costly lessons during this whole student loan process. I applied for the Income Based Repayment plan because my income qualified for it based on the amount of debt I had at the time. The payment was manageable and I paid it on time, however, it took me over a year to realize that the balance on my loans wasn’t even going down. Imagine how mad I was when I found that out. In this situation – the payment wasn’t covering the interest that was accruing daily/monthly. My loans was accruing $10/day in interest which would total $310/month in just interest and I was paying around $200 a month. So every month my balance was increasing versus decreasing even though I was paying my required bill monthly. Big Lesson Learned Here!

Suggested fix: Ask more questions about payment plans. Also not elect the Income Based Repayment Plan. Instead, I would have selected the Standard Repayment Plan and worked to earn more money to satisfy the monthly payment.

Lesson 6: Not being aware of all the interest accruing from Lesson #5. Approximately $5000 accrued in interest during that timeframe.

So, all of that interest that wasn’t being paid because of the Income Based Repayment Plan went somewhere and basically it was accruing in the “background”. A total of approximately $5000 in interest capitalized on my loans. Honestly, I was not aware that it was accruing. I just didn’t know.

Same suggested fix as before: Ask more questions about the interest.

Lesson 7: Changing your payment plan causes accrued interest to be due or capitalized onto the balance of your loan. This hurt!

Yearly, I was required to reapply for the IBR and during this time my salary and family size is required. Since I received a promotion at work since my last approval for IBR, I knew that I wouldn’t be approved for it going forward because of my new salary. Therefore, it was time to change my payment plan and my options were Standard Repayment Plan, Graduated Repayment Plan or Extended Repayment Plan. I elected the Graduated Repayment Plan and the customer service representative on the phone, told me about the approximately $5000 of interest that needed to be satisfied either by paying it or it could be added to my loan. At that time, We actually had the money to pay off the accrued interest but we had also just moved to Arkansas and even though I was employed, my husband wasn’t employed yet so it wasn’t financially wise for us to deplete our savings account by $5000. Also, It was such short notice so we decided for it to be added to my loans.

Suggested fix: Ask questions ahead of time about switching payment plans.

Lesson #8: Call the student loan servicer soon and often to get a good understanding on student loans. Ask any and all questions to get all the answers you need. This is so important because assuming that student loan debt is just like any other debt is an assumption that will cost you money, possibly a lot of money – in interest!

Mandatory Fix: Call your student loan company anytime you have a question. Period. No question is stupid when it comes to your money. Call them.

Bonus Lesson: Making student loans an option. Honestly, If I could turn back the hands of time I would have done all I could to not take out student loans. Ideas that come to mind: more scholarships, save money that I made when working in high school, working while in college to pay my way through college, etc.

However, I want to end on a good note – Best Thing I did thus far: Consolidate all of my loans with Nelnet. This way, all of my loans are with one servicer and Nelnet breaks all my loans up into individual loan groups so I can pay on loans individually to pay them off. At the writing of this blog post, I have 4 loan groups to pay off and I started with 10. My total debt is under $35,000 and at one point it was nearly $65,000. I am making progress and I am committed to paying my student loans off.

So, let me know – Do you have a lesson to share about student loan debt? Did any of my lessons surprise you? Did any parts of my college journey surprise you? Let me know in the comments.

PS: I was the first of my family to obtain a Bachelor’s Degree. I have an Associates Degree is Office Systems Technology and a Bachelor’s Degree in Communication.

A few resources:

Federal Student Loan Basics for Students PDF