20 March 2012

The College Loan That Keeps on Growing

In the fall of 1993, I was 16 years old, a senior in high school, and starting my applications for college. My mother and father wanted me to apply to UCLA or USC – they were good Mexican parents, and they wanted me to stay close to the family in Los Angeles. Also, as a California resident, applying to a university in my home state offered certain financial benefits. In retrospect, I could have gone to a public state university, or even started out at a community college because after all, the first two years are nothing more than required general courses.

But no. I was stubborn. I wanted to go to Carnegie Mellon University, clear across the country. At first, my reason for going there was because of its excellent architecture program. Besides writing stories and hand-making books in which to self-publish my tales, I loved drawing houses – frontal views, rear views, side views, aerial views with diagrams and plans. Even though my high school teachers had urged me to pursue an English degree, I was determined to study the art of designing structures.

When I attended a pre-college program at Carnegie Mellon, the summer before my senior year, I also met my first love, an artist and violinist from Vermont. He changed his university plans to attend Carnegie Mellon and be with me. Then, in the summer of 1994, our young and na├»ve love dissolved, and watching Robert Shapiro’s defense of O.J. Simpson on television seemingly left a deep impression on me. I decided I wanted to study law instead! But Carnegie Mellon was not known for its humanities or pre-law studies. I really had no reason to attend that school any more – there were better schools for my new career interest, and I also ran the risk of having to run into a very resentful ex-boyfriend on a campus with a small population.

Final price tag of pushing a Carnegie Mellon buggy: $32,428.43
Again, I was stubborn. I went to Carnegie Mellon that fall, enrolled as an undecided liberal arts major, and I signed a promise to Sallie Mae that upon graduation, I would pay her back $22,681.09 along with interest fees of 7.25%. As a junior, I saw many of my college friends get picked up by the “dot com” boom as engineers, programmers, technical writers, and consultants making minimum salaries of $40K and $50K. I remember Trilogy, based in Austin, coming to our campus to recruit. They raffled off a sports car, gave away frisbees, t-shirts, and hats, and put on a circus. Just for us Carnegie Mellonites. I had nothing to worry about, I’d be fine.

The spring of 1998, with my soon-to-be-awarded B.A. in History and a minor in Film in Media Studies, I set out to look for jobs in San Francisco and Los Angeles. I was shocked – I couldn’t find anything in the film industry that paid more than $6-8/hour. By then, I had abandoned my interest in studying law; what do 19-year-olds know about life anyway? I blindly made my way through four years of college without any real guidance, only going to the career counselor when I needed help formatting my resume.

I switched gears entirely and decided to move to Austin when I found a job as an administrative assistant at a museum, ashamed that I would only be making $20,000 – less than half of what many of my fellow CMU graduates were making – but consoled by the fact that this Texas town offered a high quality of life with low costs of living. Still, I’d been set up for the “standard repayment” plan which involved making equal monthly payments on my college loan over a ten-year period. At twenty-one years old, I found this to be unfair.

Distressed that I was not earning a “standard” CMU salary, I expressed my concern to Sallie Mae, and she put me on a “graduated repayment” plan that would start out with lower payments. She explained that over the next ten years, I’d be earning significantly more, so that I’d be able to comfortably afford increasingly higher payments. She even let me off the hook for three years, while I went to graduate school, but firmly reminded me that my interest would still accrue during that time.

Twelve years later, in 2010, my payment had more than doubled to $218.70 per month, but I was still not even making twice the salary I started out with in 1998. And somehow, my outstanding balance was $20,416.11. After a dozen years of making payments, how was it possible I had only paid off $2264.89 of my debt?

But thanks to the U.S government, since July 1, 2009, there is now an “income-based” repayment (IBR), similar to the “income-contingent” plan. The Sallie Mae website states that this program “enables eligible federal student loan customers experiencing financial difficulty to cap their monthly bill at 15% of their discretionary income.”

Nowhere is it clearly stated that even though your monthly payments will be reduced, in the long-run you’ll end up owing and paying more as you are slowing down the repayment of the principal amount. (Correction: It is stated, but not clearly and explicitly enough - there should be flashing red lights warning people not to make this horribly tempting deal with the devil!)  I’m smarter than that, though – I am skilled in researching the true meaning of things, and I am intuitive enough to know when a good thing comes with a catch. No, that old Sallie Mae wouldn’t trick me again.

Then a friend of mine put it into perspective. She said I could keep making my payment of $217.80 a month for the next ten years, but why? Anything can happen between now and then. And unlike a mortgage, which is making an investment into a home you currently live in and plan to live in the future, paying off a school loan isn’t really an investment anymore. Especially when prospective employers care more about your work experience in the last five years; where you graduated from twelve years ago is hardly relevant.

So after thinking about it for some time and debating the pros and cons, I finally applied for IBR last month. My payment has been cut in half for the next twelve months, and as long as I am making what the government considers a “lower” income, I can re-apply for IBR in a year. But now I will end up owing a total of $32,428.43, with my final payment due April of 2023, exactly twenty-five years since the year I graduated.

Whether I pay off my loan in ten years or thirteen years, I might as well pay less now and save the money while I can. Maybe the laws will change in the next decade. Maybe the government will finally forgive my loan. Maybe I’ll figure out how to once again reduce my payments and extend my final payment into the 22nd century. Maybe the world will end in December 2012. Or maybe I should have avoided a school loan altogether.

For basic information about repayment options, including the Public Service Loan Forgiveness program with impossible requirements designed to motivate you to earn serve the community while earning peanuts, with the promise of having your debt erased in 2017 at the earliest, you can visit http://studentaid.ed.gov

2 comments:

  1. I got tears in my eyes reading this post. I will forever owe Sallie Mae, but o'well.

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  2. Didn't I hear something about the government forgiving your student loans after 15 years of regular payments? So even if you pay less and never pay it all off, you can at least get off the student loan repayment train for good at some point? I'm probably trippin', but that's what I thought they said...

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