My Biggest Financial Mistake: Student Loans

Since my parents did not really offer any financial assistance for college, I had to work full-time and take out student loans each semester to cover the costs. At the time, I assumed that this was the only way to get a college education. And, it seemed like the payback of those loans was going to be so far in the future that it would all be cool in the end.

I must disclose that I attended an out-of-state university, which made my tuition costs higher than if I had stayed at an in-state college. At the time, I did not realize what an important financial decision that was for my future.

Fast-forward to today and the total monthly payment for those student loans far exceeds my $900 monthly rent. The biggest problem with my student loans is that some of them are private student loans, which have a much higher interest rate than the regular subsidized and unsubsidized student loans.

Private Student Loans – The Worst Kind of Student Loan

Back when I agreed at the financial aid office to take out those private student loans, I didn’t fully grasp the difference between them and the other student loans. Honestly, I don’t even remember getting it explained. All I can recall is the financial aid woman telling me that my subsidized and unsubsidized loans didn’t cover all of the fees, and that the private student loans would make up the difference if I wanted to fill out the application.

What no one told me was that the interest rate on those private student loans is variable and quite higher than the other student loans. And if you experience financial hardship, such as a job loss, you cannot get a deferment or forbearance on those private student loans – except in some instances where you can pay a $75 fee (in my experience) to get a 6 month hiatus on payments. Of course, when you’re unemployed and broke it mighty is difficult to come up with that $75.

Another interesting fact about private student loans is that you can actually get rid of these loans in a bankruptcy, unlike other student loans. And if you end up in a public service job where you can get your student loans forgiven, well, these loans don’t count for that since they are private loans.

How It Could Have Been

One of my younger brothers applied to tons of colleges and choose the one who offered him the most free money. The end result is that he got to attend a 4-year private university in-state without having to pay a single cent for his education. He did not particularly want to go to that school or in that city, but he knew that my parents would not be helping him with costs and he did not want to have to get a job. (he may be a bit lazy, but that is not important for this story)

My brother graduated with his degree in May 2012 and found a job by the end of that summer. A few months ago, he was laid off from that job but has not had to rush to find a new one. Why? Because his only monthly expenses are his $600 1BR apartment, utilities, car insurance, and food. He doesn’t have any credit cards and he has zero student loan payments. All of my student loan payments together are more than all of his necessary monthly expenses!

Ah, Regrets

To sum up, I would advise anyone to completely avoid taking out any student loans – especially private student loans. Those loans have to be my single biggest financial mistake and biggest financial regret. They are the reason that I have been renting apartments for 15 years instead of being able to save up and buy a home. But hey, they will be paid off in another 15 or so years!

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