Tips for Avoiding Student Loan Hell
Like many other Americans who did not have rich parents or a college fund, I financed my education through good old student loans. I have been paying on both my private and federal loans for nearly ten years now. During this time, time I have amassed some useful information on how to avoid, or at least try to survive, student loan hell.
When I went to college I was very eager to leave the state. I found living with the parents quite repressive and was ready for some freedom! There were plenty of excellent schools I could have gone to in my home state but feared my parents would want me to live at home if I went to any of them. In my teenaged mind, leaving the state was my only option. Although there was lots racism at my alma mater, there was also a lot to be said for the life skills and friendships I gained there and I was indeed happy to be independent. However, going to an out of state school left me with some financial implications I was too naïve to fully appreciate at the time. Primarily, I would have saved A LOT of student loan money if I stayed my butt in state.
TIP 1: For an undergraduate degree, it is cheaper to stay in state.
Tuition is cheaper for in state students and you are more likely to be offered state grants to help finance your education. If you are offered a state grant it can usually only be used at an in state school, therefore all the additional funding that could have been yours will not migrate if you do. If continuing to live with your parents won’t cause too much emotional damage, you can save even further if you stay at home (or maybe with a cool older sister). I know part of the joy of the college experience is living a way from home but ten years down the line you will be thanking yourself for just having tuition costs to repay instead of tuition and room and board.
Although I did get some government loans, the bulk of my degree was financed through private lenders. During my years as an undergraduate the government started offering less and less financial aid so the trend of “encouraging” students to get private loans in addition to or instead of federal loans was just gaining moment. Your choices were limited if you could not pay the full cost of school out of pocket. After the government offered their pittance, all that was left was a private loan company. With all the direct to consumer marketing of private loans I have seen, I don’t think things have gotten any better and have probably gotten worse.
TIP 2: ALWAYS get a low fixed interest rate on a loan, any loan, ALWAYS.
The issue with private loans is that the rates can be variable and depending on what the small print on the loan says. The company has the right to charge a lot more than the prime rate. (The prime rate is the interest the banks charge their most creditworthy customers.) When I signed up for my private student loans, I did not realize the rate was variable. There is a possibility that my original loans had a fixed rate but when I consolidated them together (I had to get a different loan each semester), the consolidation rate was variable. The rate on the consolidated loan was below 5% for a long time, which was lower than the fixed rate on my federal loans. Then at one point it got higher than the interest rate on my credit cards (and I usually don’t keep a credit card if the interest rate gets higher than 10%) before it dropped back down to below 5%.
TIP 3: Leave one small loan unconsolidated.
When I graduated, I consolidated all of my federal loans together and did a separate consolidation of all of my private loans. This meant instead of paying multiple loans for each semester I financed, I could make one payment for all of my private loans and one payment for all of the federal ones. At the time I did the consolidation, 8.25% was THE BEST rate you could get on a federal loan so my rate was locked in at 8.25%. When the economy tanked and student loan rates fell below 4%, I could not take advantage of it. If I had left one small loan unconsolidated, I could have.
Recently, I called my private student loan company to find out why after nine years of paying on the loan my principal balance had only gone down by $7,000. Apparently, although I had made a total of $21,000 worth of payments only $7,000 had been applied to principal. The worst part is that I have never missed a payment and usually pay more than what’s due. On the rare months that I did make a payment after the due date, I made sure payment was remitted before the grace period ended. I have never incurred a late charge. Since the economy hit my pockets as well, I did an economic hardship forbearance for six months and promptly started making payments at the end of my six-month reprieve. (Six months was the maximum time I could do the forbearance and it could only be done once during the life of the loan!)
TIP 4: If you have to, use your grace period or forbearances.
In a perfect world we wouldn’t have any bills to pay or we would at least be able to pay the ones we did have ahead of time. But we don’t live in a perfect world and some months it’s hard to pay the bills at all, let alone on time. For the months you are struggling with your finances, check to see if you have a grace period. Sometimes loan companies will give you two-weeks after the due date of a bill to remit payment. Don’t get too happy, your payment is still technically late if it is not paid on the due date, however if you have a grace period the company will not assess a late fee or negatively effect your credit until the end of the grace period. The company still has the right to call and harass you for not paying on time though, and after the grace period ends all bets are off when it comes to late fees and your credit report.
Since life happens, you can usually put your loans into forbearance for short periods of times. Most companies offer an economic hardship or temporary forbearance that you can APPLY to get. Interest will still accrue while the loan is in forbearance and the amount of time the forbearance last varies, but if you know you won’t be able to make payments for a period of time, consider the forbearance instead of letting the loan become delinquent for non-payment.
TIP 5: You have a right to your paperwork.
On the same call with the private student loan company, I asked the customer service representative when I was scheduled to stop paying on the loan and how much I would actually remit to the company by the end of that time frame. Although she knew exactly
when the loan would expire she said she could not tell me how much I would ultimately pay out because “there were too many factors to consider”. Even when I specifically asked her do the calculations based on the assumptions that 1) I do not pay the loan off early and 2) I make the bare minimum payment each month, she still couldn’t project how much I would pay out. I was surprised by this lack of competence but chalked it up to organizational shenanigans, after all an uninformed customer = a happy company.
Since she couldn’t give me a figure, I asked to be mailed a copy of the truth in lending disclosure I received at the beginning of the loan, which contained the information I requested. I was informed that since the disclosure was just an estimate and the company was not obligated to stick to those numbers, she could not send it to me. At this point, I asked to be mailed a copy of the loan documents I signed when I accepted the loan. After placing me on hold, she returned to the phone to inform me that she was able to request the disclosure form after all. I still wanted a copy of my original paperwork as well and they did send me both.
I reiterate, you have a right ot your paperwork, don’t let the lender tell you different! They are the legal binding documents you signed and the company should be able to produce them for you. Although you should always keep a copy for your own records, anything can happen over the course of many years including transition in ownership of the loan or changes with the servicing company. Do not hesitate to ask the company to produce documentation, especially when it comes to the terms and agreements.
TIP 6: Stand up for your rights and document everything.
Companies are not looking out for your best interest so make sure that you do! Always advocate for yourself and speak to a manager if necessary. EVERYTIME you call a company, record the name of the person you spoke to AND their employee ID number at the beginning of the call. If the call gets contentious, you already have the infomration and if you spoke to more than one person, record everyone’s name and employee ID number. Keep track of who told you what and note the dates and times of conversations.
At the beginning of this call I told the customer service representative how hard it was to reach an actual person. None of the options listed addressed my needs, yet there was no option to reach a customer service rep. After listening to the recording 3 times and being scolded for pushing 9 and 0 in futile attempts to reach a human being, I just started pushing everything and finally either the pound key or star key connected me. When I told the rep about my ordeal, she laughed and said, “I know” but promised she would inform her managers. Since she stated this with a disclaimer that the managers were not inclined to listen to her, I asked to speak to the them myself.
The manager I was transferred to had the nerve to say that no one else had complained about the system. Clearly others had complained (how else would the first rep have known), even if the complaining was not directly to a manager, it had still happened. The manager said he would let his managers know but I seriously doubted that so I asked to speak to his managers myself. After listening to a long explanation about how the times of the shifts are different so any one of multiple managers could get the message, I asked for the names of all of the managers. He put me on hold and came back to the phone with the name of one manager who would receive the complaint and who would be contacting me directly to follow up. For as much money as companies make from customers, the very least they can do is have decent customer service and an option to reach a representative!