I'm very excited to share Melisa's money Story today! Melisa is passionate about helping Caribbean Millennials do better with their money especially when it comes to student loans. In December 2015 she paid off her Caribbean student loans, and has assisted other borrowers analyze their student loan account statements, navigate the repayment process and develop plans to effectively pay off student loan debt from Caribbean Banks. She will be launching yourmoneyworth.com this spring, to provide personal finance resources for Caribbean Millennials. Below is her amazing story of how she has paid off $37,000 in student loan debt so far as well as some really great advice on how to manage student loan debt. Enjoy! p.s. If you would like to be featured as part of this series please send an email to [email protected], subject line "My Money Story Feature Request".
Why did you prioritize paying off your student loans?
I have been thinking about my student loan debt since the end of my first year of college. I had very limited knowledge about the U.S. higher education system, as I completed high school in St. Kitts, and wasn’t aware of all the options available to minimize student loan debt. In fact, my belief, at the time, was that student loans were required to access higher education.
By the end of my first year at a private university, in Miami Florida, I realized that I would be on track to have close to $100,000 in student loan debt and that scared me. I wanted to reduce the amount of loans I needed, so during my second year of college, I moved about 20 minutes away from campus, without a car, while depending on Miami’s limited public transportation system (if you are from Miami and had to depend on the bus, you know the struggle). I also applied for multiple scholarships and worked two on-campus jobs, at one point. But the cost of attendance was still high, and I ultimately decided to transfer to a state school in Texas.
When I changed schools, and won multiple scholarships, the cost of my studies dropped significantly. Still, by the time I graduated with a bachelor’s degree, I ended up having about $58,000 in student loan debt. Most of which was used to fund the 2 years of study at the private university.
my belief, at the time, was that student loans were required to access higher education
What types of loans did you have and what was your plan to pay them off once you graduated?
I had all types of loans! Federal unsubsidized and subsidized Stafford Loans, a Perkins Loan, and two private loans; one from Sallie Mae and another from a Caribbean Bank.
After I graduated, the first thing I did was tally up all my Federal student loans and complete the consolidation process. This allowed me to combine all my Federal loans, get a lower average interest rate of 4.125% and eliminate the headache of having to deal with multiple loan providers. For my private loans, consolidation or refinancing was not an option so, I ended up having two different private student loan providers.
After I graduated, the first thing I did was tally up all my Federal student loans and complete the consolidation process
I then decided to go to graduate school (without using student loans to finance my studies this time!) at the end of the summer after graduation, and I placed my Federal and Sallie Mae loans in deferment. For the student loan from the Caribbean Bank, I started repayments as scheduled, at the end of the post-graduation grace period and continued to make payments while in graduate school. Making these payments was a priority for me, because the interest rate was 9%; more than double the rate of my Federal loans.
After completing my graduate studies, my plan was to pay off all my student loans over the next 3 to 5 years.
What challenges did you face once you completed graduate school?
The first challenge I faced was finding a full time position. I graduated with a Master’s of Science degree at the end of 2009, during the Great Recession, and it took me about 8 months to find a job in my field. At that time, I was also a surrogate parent to my youngest brother, who was attending high school. I decided to keep my U.S. student loans (Federal and private) in deferment and I also put my Caribbean loan in deferment for three months, during my job search.
I eventually found a job in my field, but the next challenge was relocating to a neighboring state, while still providing financial support to my brother. To handle this, I lived with roommates to minimize housing costs in my new location, and committed as much money as I could towards the debt that I had accumulated over the 8 months of unemployment and my student loans.
After my first year of working full time, I was able pay off close to $13,000 of debt (including credit cards). Soon after that though, I faced another challenge, which was helping my parents relocate to the U.S. and providing them with supplemental financial support, while they navigated the job market stateside. And of course, life kept throwing surprises my way, impacting the perfect debt pay-off plan I had mapped out.
Debt can be a tool but it shouldn’t be a burden
How did you keep focused and motivated while paying your student loans?
I really don’t like excessive debt and I really feel scared by student loan debt, honestly. Debt can be a tool but it shouldn’t be a burden. Contemplating 5 figures of student loan debt after crossing the stage at graduation, weighed heavily on me. I remember plugging in my debt and assets into a net worth calculator and feeling sick when looking at the large red negative number and the graph of my net worth. That feeling is what keeps me focused and motivated, despite any curveballs that may slow my course. I know the negative feeling of having such a large amount of student loan debt and I want to have the feeling of not having that debt. Student loan debt has affected every facet of my financial life. It impacted my decision to transfer to another school, and now impacts the amount of money I can commit to savings, how much I can spend on housing, my decision to keep an old paid-off car, the size of mortgage I can qualify for… This, of course, is not a complaint, but rather, just the reality of student loan debt for me. That weight has been reduced by just about $37,000 and I keep working towards paying off my remaining debt.
Tell us more about your passion for helping Caribbean Millennials with their money?
his is another way that my experience with student loans has affected me. I have always been interested in personal finance and became obsessed with trying to understand student loans. I wanted to know what the best ways to pay them off were, and the responsibilities of the banks to student loan borrowers in the U.S. I read the promissory notes for my Federal student loans, line by line, and actually took notes during the student loan exit counseling session. I was so grateful that there was so much information available about managing student loans in the U.S.
Now, for student loans from Caribbean Banks, there is virtually no information online about how the student loans work, what the Bank’s responsibilities are to borrowers, when it comes to providing timely information. On top of that there is limited documentation on the Banks’ policies and procedures. Just imagine, calling your student loan servicer to get an update on your account balance and being asked to write and sign a letter, get it notarized and sent via international snail mail before you can get an answer. All this, after you have paid international phone rates to talk to a Bank representative. Living in the U.S. and trying to get accurate information on your student loan account in the Caribbean is quite a feat. Stories, like this one, where a borrower receives conflicting information, are far too common. Even borrowers who live in the Caribbean have had issues with getting accurate and comprehensive information about their student loans.
For student loans from Caribbean Banks, there is virtually no information online about how the student loans work.
Eight years into paying my Caribbean student loan, I would hear complaints from another borrower about poor customer service, not getting account statements and receiving receipts showing that no payments were being applied to the loan principal balance. That prompted me to double-check my old statements. It is then I realized that none of my payments had been applied to the principal balance, for the first two years of the repayment period. The loan had essentially become an interest only loan. Of course, no information was provided to me that this would be the case, nor was that clearly outlined in the promissory note.
After that realization, I started asking other student loan borrowers about their experiences and the main theme was that there is a limited understanding of how student loans work in the Caribbean and limited information provided by the Banks. I have analyzed other borrowers’ statements and coached them on the questions they need to ask and steps to take to make sure they understand their student loan account. Currently, I am working on a platform to provide resources for Caribbean Millennials on managing student loans, in particular, and personal finances in general.
Currently, I am working on a platform to provide resources for Caribbean Millennials on managing student loans, in particular, and personal finances in general.
What are some tips you would give to anyone currently managing student loans?
My first tip would be to get organized. Put all your loan documents in a binder or folder. This will simplify the process of keeping track of your student loans, by having all the information you need in one place, especially when applying for consolidation or refinancing. It will also help you get an accurate picture of your total student loan debt.
Next, you need to educate yourself, as much as possible, about managing your debt and strategizing to pay off it off. Read personal finance blogs and follow organizations that focus on managing student loan debt, like www.saltmoney.org.
For those with student loans from Caribbean Banks, ask a lot of questions of your student loan servicers and if you don’t understand something, be persistent in requesting answers, even if it means escalating any issues up the management chain or getting someone to advocate on your behalf.
You need to educate yourself, as much as possible, about managing your debt and strategizing to pay off it off.
When it comes to putting your loans in deferment or forbearance, make sure you understand which loans will still accrue interest. Even if you are not required to make payments while you are in school or during deferment or forbearance, interest accrues on unsubsidized Federal loans (and Caribbean loans), for example.
Consider making your own repayment plan. You don’t have to stick with the minimum payment or the 10 to 25 year repayment term. You can commit to paying extra on your student loans so that you can pay them off faster. For U.S. borrowers, explore Federal, state and local forgiveness programs that you may be eligible for (see 100+ ways here).
Most importantly, keep saving while paying off student loan debt, because your retirement and emergency savings still need your attention.