How to Avoid This Student Loan Debt Trap That Adds $10,000

Full disclosure, this was my student debt experience. Your experience may vary.

Yep, you read it correctly, I once spent $10,000 without knowing in a span of fewer than 18 months. What’s worse is that I have proof. What could have been 2 all-expense paid trips to the Maldives, 2 flights to Carnival (Trinidad and Rio), and/or many baller-rific nights where we would pop bottles; was merely an expense of $10k without knowing.

With that said, I’m writing to spare you.

You read it correctly, I spent $10,000 without knowing. All of that was added to my student loan debt principal. Avoid this at all costs.

As a Financial Coach, Tax Planner, and Bonafide Expert in all things poverty, I would like nothing more than for you to read this, think it over and share it with the nearest college student.

Seth Frotman, executive director of the Student Borrowers Protection Center (Washington, DC.), said 8.5 million federal student loan recipients nationally are in default. He said more than 1 million borrowers defaulted last year, for what he said was one default every 28 seconds.

What’s worse is that Black and Brown students disproportionately take out college loans to fuel vocational progress. There just isn’t enough financial experience being shared with the next generation. On average, based on “The Color of Wealth in Miami“, a joint publication of the Kirwan Institute for the Study of Race and Ethnicity, the Samuel DuBois Cook Center on Social Equity, and the Insight Center for Community Economic Development (wow that’s a ton of people); African Americans and Black Caribbeans are carrying more debt, fewer degrees, and on the lowest wages. ⇠ The stats ain’t playing.

“At any-given brunch or day party in DC, I can bet hard cash that the average student loan debt in the room is around $85,000+. And if they aren’t talking about it, that’s because they are avoiding it (not paying for it)…” LG

Table of Contents

The Story of my student loan debt

(Back to my story) Hit with Student loan payments of over $1,000/month; I did what most people do. Ran to my nearest internet source and went to Twitter/Facebook to voice my concern (nah, I’m kidding). I called “FedLoans Services” and hit the FORBEARANCE button as of May 2013. When they came back to ask for cash in October, I gave them $900 as hush money.

If you look at October 1, 2014, you will see exhibit A; an interest capitalization amount of $9,892.79. Not sure when I realized it; it likely was months later since I wasn’t adequately tracking my net worth (via Mint.com) with my student loans added in (classic millennial avoidance technique). Yep, I blew $10k just like that.

I’m not the only one, this girl made the same mistake for $12k.

What’s a Forbearance?

Well glad you asked? For me, It’s a huge mistake (see screenshot above).

A deferment or forbearance allows you to temporarily stop making your federal student loan payments or to temporarily reduce the amount you pay (if you meet certain “requirements“).

Is it bad for your credit?

Off the dome, nope! Student loan deferment and forbearance will be noted in your credit reports, and neither will hurt your overall credit score. However, your credit score will be affected if you are late or miss a payment prior to deferment or forbearance approval.

How long can you take a forbearance/deferment on your student loan debt?

Unemployment deferment: up to six months, for a maximum of three years.

In-school deferment: unlimited, as long as you are enrolled at least half-time. Discretionary forbearance: up to 12 months total.

The Fine Print That I didn’t read before I Signed…

Yep, it CAPITALIZES. TRANSLATION: it’s all added to your original loan. Me, I started owing about $82,000. However, since I was living the poverty dream and not paying attention; they added another $10,000 just because we were buddies.

Paying $750/month ⇢ It is not a “tip-drill”

I ended up creating a simple Excel calculator (send me your email for a FREE copy), that illustrates what a forbearance could look like for you.

Turns out, I wasn’t a bad person. I was living broke and austere. Like many others, I was trying to get my life financially in order, but what I didn’t know (nor) paid enough attention to, cost me $10k. I wish I could tell you that I paid off all of my student loans… Nope, not even close.

I pay $550 a month right now and will have to slave an additional 6 years for the Public Service Loan Forgiveness program.

Sometimes you learn the lessons so that you can teach others. There weren’t enough teachers when I needed help. Below are screenshots, I really hope you don’t end up throwing away money as well. I’m guessing you (or someone you know) might have racked up a clean $10k as well. Multiply that in your inner circle (4); it’s a toss-up of at least $20k+. That’s enough for a Hangover style Euro Backpacking trip for a month or two. SN: if anyone knows how to host data like excel sheets for FREE online, “Let your homie know”.