Thursday, October 25, 2007

Juggling Student Loan(s)

Juggling student loan debt is about as fun as juggling chainsaws on high speed. Not that I've ever tried the latter, but I'm all too familiar with the first.

I graduated in 1993 (now I just aged myself!) with $18,000 in debt. I went to one of, if not the, most expensive school in the country. After graduating I got a lease for a two bedroom on East 12th Street between A and B for $800 a month. It was a king's ransom for both myself and my friend, but we had our own apartment in the East Village with all the other recent college grads. Think Williamsburgh but with crack houses and affordable rents, and not a whole lot of bars and restaurants. I've held nine-to-five career-ish type jobs for the grand total of about two years of my life. My first job out of college was as an editorial assistant at a publishing house in the city. I share the opinion of this young man just out of school- paying off huge loans limits who we become. After a year of living off of coffee trucks for breakfast ($1 dollar special coffee and a donut) and ramen with bacon, I was done. I had worked in restaurants in the city during college, and I went back. I worked the swing shift at The Coffee Shop in Union Square, made boatloads of money, and in between dancing the morning away at Sound Factory I began my first novel.

And my student loan debt? Well, lucky reader that you are, that's another story.

According to a study recently reported in The Chronicle for Higher Education,

    ...borrowers who graduated in 1992 or 1993 with $15,000 or more in debt were three times as likely to default on their loans over 10 years as were borrowers with less than $5,000 in debt. Students with the lowest salaries in 1994 were more than four times as likely to default on their loans over that period as were students with the highest salaries after graduation.

So yes, I defaulted. Then there was that time I moved to LA to follow a girlfriend that I broke up with the day we left, well that miserable "year abroad" was another banner of a default year. I came back to NYC and jumped into my second, and last, real nine-to-five gig, Associate Director for an art gallery in the city. Again, not a whole lot of money and I didn't write for a year. Finally, I left to go back to bartending. The liberal deferrements were ending and my loans had ballooned. The interest was low, but still, they weren't coming down and remained out of reach. So I bit the bullet and tried to begin repayment. Problem was, I had moved around so damn much, and didn't go out of my way to let them know where I was, that they would only accept full payment. I was royally pissed off at myself and determined to change. So I read the fine print of every piece of paper I was given. I wrote certified letters, cc'd to the CEO of Sallie Mae, that were armed to the hilt with their own legalese as examples why I had the right to make payments. Six months later, I had consolodated my loans and was well on my way to paying them off.

Graduating with student loans is like having irresponsible debt without the irresponsibility. It's debt for something that has come and gone, and it's more often than not a pretty hefty sum. It's not like a mortgage and you get a house. No, it's an intellectual vacation of a lifetime that lasted four or so years and just ended. Best of all, you just won yourself an entry level position, or better yet, grad school. And suddenly, your financial literacy as a just-unleashed adult is to constantly "fix" all the things you keep fu*#ing up: a hacked up credit score, late fees, defaults, your parents have to co-sign your lease, overdrafts, the feared phone calls for eternal forebearance, the list is endless.

Count me as long ass lesson learned. As you can tell by the length of this post, I'm feeling generous. So if you want some friendly unsolicited advice...

Do whatever you can to pay off your loan and keep in contact when you can't. I preferred the head-in-the-sand approach, and if I had only talked to them I would be better off. And the damn loan would be paid by now.

Educate yourself, because the student loan industry will take you for a ride if you don't.

Know the statistics on defaults and avoid the traps. Again, if you have over $15K in loans you're almost 3Xs likely to default than a person with $5K. Paying off a big ticket item can become unreal, just like saving for a big ticket item (like retirement) can be unreal. Like saving for retirement, statistics make it real. Another stat, African-American graduates had a default rate more than 5Xs that of White graduates, and Hispanic graduates' default rate was more than 2Xs that of White graduates. Yet again, I fail to fullfill the Asian-American stereotype (but at least this time I'm not giving it the middle finger), since Asian-American graduates have the lowest default rates.

Play with your calculator. Fiddle with the figures and just know your big picture. Knowing what it takes to pay it off in ten years and what it takes to pay it off in twenty is a good kick in the pants.

Defer. If you have other debt, and you can defer your student loan(s), pay off your other debt first. This is the tricky part. If you have high credit card debt, for example, but you are well on your way from financial mess up to financial clean up, then free up some money. Credit card interest is high, and like all debt (except for, arguably, mortgages) you should pay off the highest interest rate first. Just be careful not to default.

Watch your deadlines. Mark one of those free calendars of cute endangered animals that you get in the mail every year. In big marker. Mark when your loan is due, when your forebearance ends, when the deadline is to call to change your automatic draft so you don't overdraw your checking account and miss a payment. Mark down the date, time, and reason for every call or correspondence with them. And of course, keep every piece of paper and email they send to you.

Look into consolidating your loans. The Boston Globe did a great piece on loan consolidation. Make sure the offers are legit, read the fine print, and research as much as you can. Student loan consolidation has great benefits, but it's a maze and a minefield.

And last but not least, talk to as many people as you can about their own experience. Whether you do it on a blog or over dinner with some friends, know the horror stories and the I-can't-believe-she-was-so-nice stories. Know that most of the time you call up they won't even be able to find you in their computer. Know that half of what they say to you will sail right over your head and you'll have to write it all down and get back to them. Know that no college degree equips you with the ability to decipher your loan packet, but you have to try your damn best. And know that if I can mess up and flip it around, anyone can. And this spring hopefully I'll be dancing around Prospect Park screaming, free at last!


Mrs. Micah said...

I laughed about the over 15k thing. I was thinking...yes, we have 8x that! *shudders* We're going to be figuring out soon (when the protected period is over for him, which it's not quite yet) whether we'd be best served by consolidating or what. Seems like the best move right now. But I need more details!

And you're right, chainsaws. Eesh!

PiggyBankBlues said...

i hear ya. i know people with over 100K in student loan debt. mostly people in jobs that supposedly will pay for itself, like lawyers and doctors, but still.

in my limited research for this post, i noticed that someone mentioned she couldn't consolidate after the grace period. she suggested conolidating right before the grace period ends. check it out.

GG said...

Excellent post and great reminder. Here's to paying it off and dancing in the park. Best wishes!

Ms. M&P said...

GREAT post! I'm sending this to my sister. She's still in her 6 month grace period. I wish I'd read this right after graduation. You should teach classes!

PiggyBankBlues said...

thanks gg, and welcome! i've been a quiet reader of your blog for a little while now :)

m&p- funny you should mention teaching, i wish i could find a way to do something like that.

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