Dumb Money Choice: Not Paying Student Loans Early

When I started writing about dumb money choices from my 20s, I am a little ashamed to say that I missed the obvious mistake we made.  The right choice was there, right in front of us, and we chose poorly.  The obvious mistake?  We had student loans, and instead of paying them, we consolidated into a longer term.  How much money did that cost us over the long run?

First, the Good News

As much as I am about to castigate myself for this, I would be remiss if I didn’t share some amount of happy news about the whole mess.  As of the past month or so, the last of our student loans are gone.  We did pay extra at some points of the term we have now, so we paid it off early.  Kinda.

Okay, let the regrets begin.

The Backstory

As stated previously, I was working in tech.  The sky was the limit.  Everything was awesome.

Shortly after I started at this awesome tech job, the student loan payments appeared.  We paid the required amount, of course, but we didn’t pay extra toward the student loans while expenses were low.  I mean, really, what expenses?  We didn’t have a lot at the time: a smallish apartment, two older cars (which were paid off), and not much else.  But, honestly, paying off debt as quickly as possible wasn’t even a thought at the time.  The idea certainly wasn’t nearly as exciting as eating out three times a week (or however often it was).

And then everything wasn’t awesome.

How Unemployment Led To A Bad Choice

As I’ve said, we got through my excruciatingly long unemployment period.  We cut expenses, tightened the budget, and, as I recall, used our credit cards way, way too often.

And then there was this student loan payment hanging over our heads.  And, quite honestly, paying it was difficult…but if I hadn’t been dealing with what would eventually be diagnosed as depression, I think it could have gone better.  As it was, I wasn’t doing a whole lot to try to track down a job, and money was tight.  So, I went for what, at the time, seemed the best option:  forbearance.

If you don’t know what forbearance is: consider yourself lucky.

Forbearance is an agreement between you and your lender that you will temporarily suspend payments on your loan.  It is not something you want to do unless you have no other choice, and I’ll tell you why.  The interest will still accrue.  And accrue it did, for the six months (as I recall) during which we paid absolutely nothing toward the student loans.

(Aside:  some of the previous paragraph may not apply if you are in forbearance due to the COVID-19 mess.  Many loans are not presently accruing additional interest until September 30, 2020.)

So What Did We Do Next?

Eventually, we did get back to making regular payments on the student loans, once I emerged from the wonderful world of unemployment.  Unfortunately, as a result of switching fields, I was not pulling in as much as I had at the old job.  Paying even the regular payment on the student loans was going to be an issue, and fast.

So…we consolidated.

And graduated to more debt.  Image by 3D Animation Production Company from Pixabay.

We decided we couldn’t deal with the minimum payment due (for the nine years we had remaining) and moved to a much lower payment, stretched over 20 years.  20 more years, that is, beyond the several years in which we had already been paying on the loan.

Did consolidating lower the interest rate?  Honestly, I don’t remember.  I think it did, but not as much as I would have liked.  So, that means that, stretched out over another 20 years, we would be paying a bit more interest than we would have done if we had just paid the original regular payments.

(With that said, the lender did lower the rate by a full point after we made either 24 or 48 months’ worth of payments on time, but we still ended up paying more interest, I’m fairly sure.)

Since I didn’t have the actual numbers to compare, I had to estimate.  There are multiple sites that you can use to run your numbers; the one I used was Calculator.Net.

How Would I Have Handled Our Student Loans Differently?

It’s easy to look back 20 years and say that I would have paid more toward the student loans when things were great, but if I had the mindset then that I have now, I would have done exactly that.

Would we still have consolidated after I moved to my new position?  Probably so, but we would have been much further ahead on our journey to retire that loan.

Regardless, our loan is finally gone.  Hopefully others won’t have to keep theirs as long as we did.

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