Student Loan Super Borrowers: Facing Larger Than Life Student Loan Debt
Posted By Eliana Osborn on January 25, 2016 at 9:05 am
Of the millions of Americans who borrow money to pay for college, there’s a small subset dealing with extraordinary levels of debt. In 2012-13, the average student loan amount was $7,000. The highest percentage of students taking out loans were those attending private for-profit schools. While many students struggle with repayment, especially right after graduation, those with very high balances are in a uniquely terrifying situation.
Joshua Cohen currently owes $20,000 in federal student loans, in addition to $35,000 in private loans that he took out to finance his BA, MBA, and JD degrees. He’s a lawyer at Cohen Consumer Law in Vermont, a career that many would think balances out such high levels of debt.
The truth is a bit more complicated though. “My private loans were at about $35k, but I defaulted on those and then settled a few years later,” says Cohen. “Advice for college students – never get a private student loan. If you must, never let anyone co-sign. Best advice, find a cheaper school.”
Cohen is enrolled in Income Based Repayment, a plan where your monthly payments are based on how much you are earning. The repayment time period is longer this way but a borrower isn’t stuck choosing between paying rent and avoiding default. The Obama Administration has pushed for automatically enrolling borrowers in IBR to help them steer clear of credit issues.
New York Times found a borrower with $410,000 in student debt
The New York Times recently chronicled the dramatic loan balance of teacher Liz Kelly. She owes $410,000, from starting and not completing law school as well as other stints at private universities. Her debt from just her bachelor’s degree was $40,000—a number that doesn’t make a lot of sense for an English major.
Kelly’s loan balance continues to grow today, with interest charges accruing even when she didn’t have to make payments since she was enrolled in school. She took out loans for more than her academic costs for things like child care, and even added loans to help her kids pay for college. She’s at the end of her forbearance period—a sort of hold on payments allowed in case of hardship, like job loss or illness.
Kelly’s story is certainly extreme, but all students can learn something from it. First, just because you don’t have to make payments, your balance is growing. Heading to graduate school to avoid repayment doesn’t make sense—the debt is still there, still adding interest. Second, starting programs and not graduating can leave you in bad financial straits. Just enrolling in a PhD program, Kelly added more than $7,000 in debt because she didn’t withdraw on time.
Budgeting and cutting expenses to pay down student loan debt
Shashank Sundareshan had $160,000 in student loans in 2012 after attending business school at the University of Southern California. Today, in just three years, he’s down to $50,000. “The only way I’ve been able to pay it down so much is through careful budgeting. Of course, it didn’t hurt to have a good salary. Still, I’ve seen people who have debt and make good money live as if they had no debt. It comes down to just getting in the mentality of chipping away as much as you can.”
Sundareshan explains some of the ways he’s lived frugally to enable him to pay off so much of his loan balance. “I had to take a good look at my monthly expenses and chop out anything that was easily categorized as a “want” (restaurants and fast food, clothes for fun, coffee shops) and then try to push down the cost of the needs (food, shelter, clothes for work) as much as possible. Every other dollar I took home was targeted at getting the debt to a manageable place.”
“I chose to share an apartment with a couple rather than get a single-bedroom apartment like my co-workers. Although the grocery store was half a mile away, I would walk there twice a week, lugging my groceries back home ensuring that I would eat-in rather than pay triple for someone else to cook me a poor tasting burger. And when I made clothing purchases for work, I had to consider them investments – “I can spend $4/month on shoes, so this $100 pair of shoes has to last me at least 2 years.” Lastly, I internalized the cost of each dollar I was spending. When you know that $1.00 spent now is going to take you $2.00 to pay off on your loan in 10 years (with the interest), it’s just so much easier not to spend it.”
Help with tackling mega student loan debt
Cohen goes by the moniker ‘The Student Loan Lawyer’ as he offers services to those in stressful repayment situations. No student begins college thinking they’ll ever need to hire an attorney to help them navigate their financial life. Says Cohen, “My business is simple – I help anyone with student loan issues. I get people out of default and on to affordable payments for federal loans. I sue debt collectors and other industry players when they violate the law. I file suits to have loans discharged through bankruptcy (no successes yet, but no failures – had good settlements).”
Applying for student loans is a simple process with a lot of responsibility attached. Borrowers need to be as informed as possible about repayment, interest rates, and post-graduation job prospects. As Cohen says, sometimes you need to make the hard choice and select a less expensive school. The numbers add up, especially when multiple degrees are involved.