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?