Lessons in Lending ($85,686.42)

Just a reminder, when I consolidated the majority of my loans the standard repayment plan was going to be 30 years (360 payments) and the interest that was going to accrue over that 30 years would be…

Interest

Deep breath in and…damn it. This was the panic I had before and what had prompted me to write President Obama about the future of people like me. It has been a great journey and I decided I’m going to be public about how much is left for me to pay in the title of my posts as I make progress. I had a stretch goal of $3,000 each month and I decided to bump it up so I’ve been paying $3,500 per month towards my student debt. I continue to find opportunities to make money and cut expenses. I just wanted to share a few things I have learned about student loans. Some of this might be old news or new news, but this is what I have learned.

Paying extra doesn’t automatically go towards the principal. When I started paying extra on my loan beyond the minimum, I would get to the next month and wonder why they weren’t asking me to pay. It was because the loan company used the extra amount to go towards next month’s payment. Depending on the lender, they typically don’t use the extra amount by default to pay down the principal. You usually have to tell them what to do with the extra amount by writing them a letter or making a note on the electronic payment. Some lenders don’t have that option electronically so they make you snail mail the payment with a note. God forbid the lender have a default action that helps the person borrowing the money save on interest. Jerks. Below is a screenshot from my errors and learning moments where I paid extra and it was going towards the following month’s payment. You have to tell them what to do, they are evil and want you to never pay this shit off.

Payments

For lenders that you have multiple loans with, be aware. I had one lender that I had multiple loans with that could not consolidated because of the type of loan. For example, I borrowed $2,000 in one year and another $2,000 the following year, so it’s the same lender but multiple loans at different interest rates. You need to tell the lender how you want your payment to be applied. If the minimum payment is $100 and you want to pay $200 that month, you need to tell them how to allocate the extra amount across the various loans. Otherwise, they just default to applying it equally across all loans and you may be losing money in interest depending on the rates.

Automatic payment may be convenient but it doesn’t get it paid down quickly. I had enrolled in automatic monthly payments and I stopped. Why? Awareness and motivation. Most lenders cut you a “deal” by .25% for enrolling in automatic payments but really it’s a ploy to suck you into minimum payments and only paying on the interest so you never actually pay off the principal. I also found that it created a feeling of pain manually paying each month which I’ve used to motivate my behavior. I’ve learned to channel that frustration into something productive and it forces you to be more aware of where your dollars go every month.

Read your FAQs. Grab a coffee and read through the frequently asked questions (FAQs) on your lender’s website. It’s boring but it will save you money and energy. Each lender is different and evil in its own way. At one point, I had 5 different lenders to log into. Now I have 2. I am hoping to pay another one off in the next 2.5 months.

In January and February, I paid $7,000 in total towards student debt. We can do this!! What lessons have you learned about loans?

President Obama Writes Me Back

Throughout college I used to send letters to the President of the United States on a variety of topics (for both President Bush and President Obama). Everything from education to community issues to my thoughts on the future of our country. I’ve received electronic responses that were usually general responses like the one below.

Obama Letter Electronic

If I remember correctly, I wrote a letter sometime in late 2010 and resent again in April, 2011 about my loans. I didn’t write only to complain, but I wanted to share the challenges that lie ahead for myself and for my generation. The tone was frustrated but hopeful, and a concern I shared was that people like me weren’t going to have families until later for career and financial reasons. I was also concerned that people like me would not be contributing to the housing market as quickly and that the interest being paid on student loans would be a whole bunch of money that could be invested in our country’s economy in a variety of ways.

The President responded.

I initially received the email below and thought it was spam.

Obama Letter 01

They sent me a PDF copy of a handwritten note and offered to send the original to me. The letter arrived in the mail in an ivory envelope. It read…

Eric – Thanks for the letter. I know what you’re going through – Michelle and I had $120,000 in combined debt after we got out of law school. That’s why I’ve made it a priority to expand college grants and a better deal on student loans. So please don’t be discouraged; you are incredibly young, and as the economy comes back, your investment in your education will pay off.

Sincerely,

Barack Obama

Obama Letter 02

Democrat, Republican, or otherwise, it was cool to get a handwritten letter from the President of our country. I was also insanely jealous that his combined debt coming out of law school was $120,000. It was a reminder of how badly I screwed up on my financial aid decisions, but a wonderful reminder that I am, as the President put, incredibly young.

I’m just sharing an update with you Mr. President that I am making some serious progress on paying off the beast. I’m about 4 years older now and the debt is down from ~$128,000 to ~$89,000 (most of that paid in the past year and a half). Seeing what I’ve paid in interest has angered me and motivated me like no other.

If I can pay this off quickly, maybe I can take a run at being the President some day? Just kidding, I’m not eligible for the Office of the President because I was adopted from South Korea. More importantly, it is the most stressful job in the world and most of us can’t plan our lives accurately for the next 4-8 years let alone the future of the free world. I empathize with whomever is in office. Sounds terrible.

While my student loan interest rate is 3 times higher than mortgage interest rates currently, I’ll continue to pay off that school and put off buying a house as long as possible, but I am making progress!