In our Money Mic series, we hand over the podium to people with controversial views about money. These are their views, not ours, but we welcome your responses.
Today, one woman shares how getting denied for financial aid left her with a massive amount of student loan debt that's greatly impacting her daily life—and, potentially, her future.
The day I filled out the Free Application for Federal Student Aid (FAFSA) form, I was a happy high school senior who had just been accepted to Ramapo College of New Jersey, a public school where I’d be paying in-state tuition. I had chosen the college in part because I didn’t want to graduate with hefty student loans—and figured that I'd get a decent aid package based on my family’s financial situation.
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My parents’ accountant helped me and my dad fill out the FAFSA, which determines how much we were eligible to receive in federal student aid through grants and low-interest federal loans. He was the one who first told us that he suspected “we made too much” for me to receive aid. But I refused to believe him.
The yearly tuition, as well as room and board, came out to $22,000 a year. My family’s income was about $85,000—a sum that was stretched thin. My mom was on permanent disability because she suffered from a condition that affected the discs in her neck, so my dad, who worked in the casino industry, had to cover living expenses for me, my mother, my brother and our grandmother, who lives with my family.
I didn’t expect to get a whole lot of financial aid, but surely, I thought, somebody would see that it wasn’t going to be feasible for my parents to help me pay for tuition in addition to all of their other expenses.
When I got official word from the federal government about my aid package, I cried. I had been denied any grants, and they really limited the amount of federal loans I could borrow—only about $7,500. I actually thought that I wasn’t going to be able to go to college. I didn’t have rich relatives who I could beg to help me pay for tuition, and I knew my parents couldn't really help.
I was discouraged, especially since I thought I had done everything right. I studied hard and got mostly A's in high school. I was going to a state school, not some fancy private university. How could the system have failed me—and how would I find a way to pay for college?
Public School, Private Loans
On top of the $22,000 a year that I'd need to cover tuition and room and board, I figured that I needed another $2,000 to pay for books (some cost as much as $400!) and the additional credits I would need in order to take my CPA exam to become an accountant. This meant that I had to sign up for two summer sessions and a winter session of extra classes when most other students had breaks.
I went ahead and applied for the $7,500 in federal subsidized and unsubsidized loan amounts I was eligible to receive. Every year, I also reapplied for aid through the FAFSA, and every year I got the same response: no grants and a similar amount of limited, low-interest loans.
Over the course of four years, I ended up borrowing roughly $30,000 in federal loans. I pieced together the rest through five private loans, which added up to about $100,000, factoring in the interest.
I covered other day-to-day costs by working at the student activities office throughout college, as well as a paid internship my senior year. When I couldn't afford certain books, I'd borrow them from friends or make photocopies of what I needed.
During my first two years of college, I conveniently forgot about how much money I owed. I just told myself I’d figure it out when I graduated. Then, in my junior year, I had to start paying interest on a few of my private loans. The payment option that most students get—a six-month deferral after graduation—wasn’t available for these loans, so I was forced to pay $175 a month. It killed me that this money never touched my principal, but it was the only way I was able to afford college.
It felt like a mortgage payment—except that I would have received a better interest rate on a mortgage than I did on most of my private loans.
Reality Bites: The $1,400 Monthly Loan Payment
I graduated in May 2013 with an accounting degree and was fortunate enough to land a job at a big accounting firm before I even graduated. I counted myself lucky: While many of my friends were frantically sending out résumés and wondering whether they'd have to move back home, I was negotiating my salary, which is north of $50,000.
As soon as I graduated, I started paying $178 a month in interest toward the private loans that I'd already started paying my last two years of college. Six months after that, when the other loans kicked in, my payment ballooned to $1,415 a month.
It felt like a mortgage payment—except that I would have received a better interest rate on a mortgage than I did on most of my private loans. My subsidized federal loan has an interest rate of 3.4%, and the unsubsidized loan is at 5.6%. But my lowest-interest private loan has a 7.5% rate, and the highest is at 9%. The private loans are really what’s killing me.
I’ve looked into consolidating, but I haven't had luck finding an option that works for me. I'd either have to accept a variable rate, which seems too risky because the interest rate, by law, could shoot as high as 18%. The other option is to consolidate and pay the average on all of my combined interest rates—but with an additional .25% percentage tacked onto the rate. Plus, I would have to extend my loan repayment time from 10 years to upward of 25. This would ultimately mean paying close to $300,000 for my loans!
Since I can't bear to give the lenders so much more in interest, I've had to wrap my head around the fact that I’ll be paying $1,415 a month for the next 10 years.
A Seriously Bare-Necessities Budget
My take-home pay is a little more than $3,000 a month—and roughly 45% of that goes toward my student loan payments. When that much of your paycheck is eaten up, something’s gotta give.
For starters, my boyfriend and I got engaged, and we realized that if we were going to save for a wedding, we’d have to move in with his parents. When we lived on our own, our rent was $1,200 a month, which wasn't that expensive, but the $600 I was paying wasn’t chump change either. After the loan payments and rent, I was left with about $1,000 to cover gas, my cell phone bill, groceries and other expenses.
Moving in with my fiancé’s parents allowed me to allot my saved rent money—and then some—toward saving for the wedding. Now my readjusted monthly budget looks something like this: 45% goes toward my student loans, 40% funnels into our wedding fund, and the remaining 15% is spent on bills, gas, food and any other expenses. I pay for necessities and necessities only. I also contribute 3% to my company’s 401(k), but that comes directly out of my paycheck.
I’ll be forever grateful for my education, but something is wrong with the system when a student like me doesn’t get financial aid—even after repeatedly applying for it. And I even consider myself one of the lucky ones: If I were making less, I don’t know how I’d be able to afford to pay for the loans, much less anything else.
My fiancé and I are petrified that we may never be able to get a good interest rate on a mortgage—much less afford a home—because of my debt-to-income ratio.
Even with my decent salary, there are times when I feel like I have nothing to show for it. I get to work at 9 a.m. and don’t leave until 11 p.m. I won’t let myself spend on items as simple as new shoes for work, and I can't join my coworkers for drinks.
My fiancé and I are petrified that we may never be able to get a good interest rate on a mortgage—much less afford a home—because of my debt-to-income ratio. He’s supportive, but I know he feels the stress of my debt, especially since he has no college loans of his own. There have been months when he’s had to give me his ATM card, in case I really needed cash but didn’t have any.
If there’s any bright side, it’s that I’m definitely in the habit of saving. My fiancé and I have talked about how it would be great to continue paying ourselves $1,400 a month after my loans are paid off. Sure, it’ll be nice to have a little more wiggle room in our budget, but that money could also go toward future goals, like buying a house or contributing more to my 401(k).
And I’m hoping that as my salary goes up, I’ll be able to pay off the loans sooner than my current 10-year window. In the meantime, I’m definitely struggling—and left wondering how many others are too.