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

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% 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.

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Forbearance

danielgrad1 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,” Cece said.

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 decisions. 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 knew 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 to 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.