Meet Colleen: Learn the Cost of 7.25% Interest and Putting Children First

Michael Lux Best Of, Blog, Profiles in Student Loans, Student Loans 33 Comments

Our first Profile in Student Loans is Colleen. Colleen works full time as a social worker. On nearly a daily basis Colleen enters strange and possibly dangerous situations to help the most vulnerable of her community. It is a thankless job, but children in difficult situations need an advocate and a voice, and Colleen fills that role. The emotional toll can be high and the pay is low, but she does it because she is able to help children who need it most.

Colleen’s Education

Colleen returned to school in 1995 as a non-traditional student. She majored in social work and graduated with honors. She was accepted in to a prestigious graduate program at Columbia University, but chose Rutgers instead because she knew it would save her at least $20,000. She completed her degree as an advanced standing student, again saving her additional money. By making decisions with an eye on the future and realistic expectations about her future earnings, Colleen was able to graduate with a total of $40,000 in debt for her undergraduate and graduate studies combined.

The Student Loans

At the time Colleen graduated, rates were on the rise and she was advised to lock in her rates as soon as possible. While other rates were approaching 8%, Colleen locked her loans in at a rate of 7.25%. Like an unfortunate many graduates, Colleen initially struggled to find a job and had to defer her loans until she found employment. Once she found employment, the student loan bills started to roll in. Unfortunately, Colleen’s salary was insufficient to pay the monthly bills that were required and she sought forbearance. Unaware of the consequences of this decision, Colleen’s balance grew to $60,000.

Realizing that her problems were getting worse, Colleen entered repayment and signed up for the graduated repayment plan. With no option to refinance her loans, despite lowered interest across the board, Colleen’s interest rate has remained at 7.25% since 1999. Though Colleen had initial issues when she first finished school, for the last eight years, she has consistently paid her student loan bills.

In the words of Colleen:

“As of May 25, 2013 I have paid a total of $33,851.73 to Sallie Mae, the holder of my loans. According to their records my balance on my principal is a little over $58,000.00, which means out of the over $33,000.00 I paid, not even $2000.00 went to my loan, it almost ALL went to interest.”

The Bottom Line

After over a decade of putting herself at risk to help those most vulnerable, Colleen now owes approximately $18,000 more than what she initially owed on her student loans.

Colleen’s View on the Student Debt Crisis

Colleen is a big proponent of Elizabeth Warren’s student loan plan. Having paid so much interest over the years, Colleen feels that she should be expected to pay the .75% that banks have to pay the government. She says she is not looking for forgiveness of her student loans; she just wants her years of payments to count for something other than profits to Sallie Mae. Colleen would also like safeguards put into place so that other people do not end up in her situation.

Colleen’s Future:

“If student loan rules do not change… I will be a 61 year old with student loan payments and no savings for retirement… and, if I am lucky enough to have Social Security, I will be worrying that it will be garnished to pay for the debt I took to make a difference in the lives of the less fortunate.”

Colleen’s Advice to Others:

Colleen suggests taking out the absolute minimum to pay for college by cutting costs every way possible. She thinks that not attending your dream school to attend a less expensive school is the smart move. According to Colleen, “once you get work experience, where you went matters less and less.”

Finally, Colleen recommends taking off a couple of years before going to college. She thinks getting work and life experience while saving money will make you more prepared fore college. This will also help you avoid ending up as a dropout who still has to pay off student loans.

What the Sherpa learned from Colleen

Student Loan Finance Lesson: If you are gainfully employed and do not expect to see an increase in salary, a forbearance is probably a bad idea. Your loan balance will grow, the forbearance will run out, and while your salary will still be the same, your bills will be even bigger.

Life Lesson: I also learned a little bit about real passion for helping others. Colleen is clearly a very intelligent and hard working person, but despite all of the financial difficulties she has encountered pursuing her line of work, she would not change it. It really renews my faith in humanity to have the pleasure of interacting with someone like Colleen.

What do you think of Colleen’s story? Do you have any advice for her or others in her situation? Does it change your view on the student loan debt debate?


  • I feel for Colleen. I definitely think that something needs to be done about student loans, but I’m not sure the answer is simply lowering the interest rate. I think it is a combination of a low interest rate as well as some education so that students know what they are getting themselves into. I remember signing my student loan paperwork….it meant nothing to me at the time. Then when I received the letter telling me I would be paying $300 per month, I freaked out. Too many students are exactly like me….signing a form with no real understanding of what the consequences are.

    • I think finance/loan education is part of the answer as well. Ultimately, I think the problem starts with the high cost of college, we need to get it back to the reasonable levels it once was.

      While we address the larger issues, we can’t ignore those that have been hurt most by the current system. Something needs to be done for them as well.

  • That is so crazy and seems predatory. Changes definitely need to be made.

    • It sure does. It reminds me of some of the mortgage crisis issues I read about.

  • Great profile. I like the advice to take a couple of years off. While I didn’t do this, I DID work full time and go to school because my parents couldn’t help and I was clueless about financial aid. That work experience (as Colleen mentions) was invaluable later as I was trying to relate to people.

    • I’ve always heard that you should wait a couple years before grad school, but working right after high school is starting to make more and more sense. I used to think that if you didn’t go right after high school that you might never. I know think that might be the best approach for some.

  • Tracy

    The story is very well put together and should gain good searchability. Sectioning things off like you do is great for adding ease to the reader and its readability. I especially like the bottom section. How great it would be is we all started remembering to look for the life lesson in the things we do.

    I think Colleen’s story brings out some very important points in a tone that lends credibility and humanization or the situation as a whole. This story is well done and touching. So often our stories come across to outsiders as whining and ungrateful. Colleen is a story of courage, perseverance and gratefulness. It shows her dilemma in a very powerful and understated way. As we all tell our stories individually this is a good profile to emulate. Thank you for sharing!

  • Tracy

    that would be… lends credibility and humanization TO the situation as a whole.

    • I hope so. A lot of numbers and statistics get thrown around in the student loan debate. Its critical to remember these are real people with real problems who deserve a fair shot at paying back their debt.

  • What a tough situation. I thought there was a write off for social workers after 10 years of work or something? This is not a field where you can expect to make a lot of money so you should definitely opt for the cheapest college and limit the loans you take on.

    • There is a program for public service forgiveness, but this is a newer program that was not around when Colleen finished school. Additionally, her circumstances make the graduated repayment plan the only possibility for her, and this plan is not eligible for public service loan forgiveness.

  • Very sad story. More people should hear these types of stories because many ignorant people who comment on yahoo/msn stories about student loan debt always talk about how students have entitlement issues and that they should pay the debt they took out. But they don’t how crushing the student loan debt can be where you pay so much yet the principal is still so high.

    • I agree. Its so easy to be dismissive… until you take the time to learn the reality of the student debt situation.

  • Social work supervisor here. Good move on not going to Columbia. I was fortunate and they gave me a pretty good scholarship to go, so I made out about the same as if I’d gone to a state school. Sadly I know many “Colleens”. Peers, friends and co-workers who took out hundreds of thousands of dollars to go to school. It’s all about the money for the big universities.

    Columbia doesn’t need your tuition dollars with the size of their endowment. Higher education for “helping professions” with low pay should be free in my opinion. Social workers, teachers, non-profit professionals make lower than normal salaries to do the work that many people couldn’t and wouldn’t want to do. Pay them decent salaries, or make tuition free. OK, off my soapbox.

    Hang in there Colleen! The work you do matters and your clients appreciate you, whether they say so or not.

    • Well said KK! Our society benefits so much from social workers, teachers, and non-profit professionals and they ask for so little in return. They deserve better and we owe it to them to do better.

  • I’m with colleen on this one. Education is sooo overrated and going to your second choice and third at cheaper price will not make a difference if you career. Your success in the work place has nothing to do with what school you graduated from. It comes down to your character.

    • Indeed! The school you went to may matter for your first or second job, but soon it all comes down to reputation, experience, capability and integrity.

  • Colleen came out of school at a really bad time. Too early for most of the programs available today. My husband was in the same boat as a teacher graduating in 2000. He owed about $40,000 locked in at 6% and barely paid off any of the principal over the last 13 years. His first loan came out a year before the cutoff for Teacher Loan Forgiveness. When I called to ask why, they told me that the program was to encourage people to go into teaching and he’d already decided to do that before the program, so was not eligible. I’m sorry, but people don’t go into teaching and social work because there might be a program to have your loans paid off. I’m afraid we lose many good candidates because the pay is just too low. That’s why my husband just went into administration. He was a great teacher, but sometimes you want to move up the pay ladder, even if it means changing jobs.

    I would tell Colleen to hang in there. I don’t know what her expenses are, but the only way to pay off those loans is to make way above the minimum payment, and it can be done.

    • You are right. It really is a shame how much of an effect timing has on many of these programs. Its not like people are more deserving based upon when they graduated school. I know many new laws are being discussed, I hope they don’t forget about people who have been out of school for a while.

  • Tough situation to be in but with help she will be able to get where she wants to be. I don’t think interest rates are the problem. I think more so education about how much college costs and options need to be implemented in to the system. No one talks about student loan debt to the children in high school. Parent are uneducated about the loans and so the children are uneducated. I look at my student loans as a choice I made. Do I like have them heck no. But if I pay 20k for college and end up making $50k per year after college is it not worth it?

    • You make a fair point, but I wonder if people knew or could have known what they were getting themselves into. Do you think that some students were misled about their student loans?

    • That’s also possible but with the amount of people complaining about them I would say not all of them were misled. Lets say it was 30% which I still think is high the rest of us we just told if you can pay for it get a loan. Some of that has to fall on us for not reading up, not deciding to go to a cheaper school, and lack of education about how student loans work and how expensive they are.

    • I certainly agree that there should be financial consequences, but giving people the option of declaring bankruptcy or lowering interest rates is not exactly just letting them off the hook. Many of these decisions were made by 18 year olds without a clue. I think we have to find a way to give them a chance to get out of the red.

    • Agreed! But hence parents need to be more informed as well. How is it possible to sign 40-100k in debt at such a young age but not be able to drink. I started college at 16 and they had no worries with loans that the biggest issue I have.

      I agree but some of the education on student loan needs to start earlier on. You have great information on your site but the problem is that most people wont look for this until after they are in debt.

    • Education before you get student loans is definitely very important. Unfortunately many high schools are still judged by the percentage of students who go on to college. What incentive to they have to say, “you know, college might not be a good idea”

  • Yikes. I had loans in 1999 and 2006, but not nearly to that magnitude. I could have gone ivy for my MBA, but that would have cost so much more, and I wasn’t really interested in full time consulting or banking on the east coast. For many professions, I really wonder what a name-brand school brings, and in a lot of cases, you really don’t need the education that even a state school brings…

    • Agreed. I think as time passes, people will start to flock towards less expensive schools for this exact reason. Hopefully this will drive down the cost of college.

  • Wow, 7.25% seems rather high. Maybe just because interest rates are so low now. College can be an investment, and Colleen was smart to go to a less expensive school.

    • I also think she was smart to go to a less expensive school, but even though she made this smart move she is still getting crushed by student loans. It just doesn’t seem right.

  • That’s so sad to hear that barely any of the payments went to the principal and she was paying mostly interest. I agree with KK on her points above for people earning degrees in social work, teaching, etc. It might be a thankless job, but thank you, Colleen, for going into a field that most people aren’t brave enough to do.

    • Well said Anna! Lets hope Colleen gets the thanks she deserves in the form of more reasonable interest rates.

  • Liana @ Sun City Thiruvallur

    I never heard this kind of story in my life. I hope it will change soon…)