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They fly out of my mailbox every winter like a swarm of locusts. Computer-generated loan-consolidation mailers promising relief from the student-loan blues. A recent flier delivered to my rent-stabilized Brooklyn address read "Under the provision of the higher education act the federal government has reduced the interest rates on current borrowers to the lowest rates in history: 2.8 percent." I dialed the 800 number, feeling like a teen on her first day of summer vacation, the possibility of freedom in my belly. The answer was the same as usual. "If your lender owns your loans and you've already consolidated at 7.4 percent, I'm afraid you're ineligible for a reduced rate," said the scripted telesalesman.
I always call in the naive hope that the government has decided to repeal the one-time consolidation rule. That would mean that thousands of borrowers like me, who locked in high-interest loans in the late ' 90s, could refinance at current rates. I pay two-and-a-half times as much interest as today's borrowers. Each month, $442 of my $531 payment goes straight into the coffers of one of the largest lenders in the country, while my debt receives a paltry $89 a month. Watching my principal creep down is like watching an ocean evaporate.
Unlike credit cards or personal loans, I can't sell, refinance or renegotiate my student loan, ever. I went to college at 24, genuinely excited about my education. After spending five years working odd jobs and traveling around Europe, I understood its value. My middle-class family had too much money for me to qualify for scholarships and not enough to subsidize my education. My proud British mother thought paying my own education would build my character. So I took the maximum loans I could over four undergraduate and two graduate years. I worked a few part-time jobs to cover basic expenses. I lived simply and spent most of my time in the nearby library immersed in my studies. I'd deal with my loans when the time came. My main priority was graduating with honors. When I did, I was $105,000 in the red.
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Six months later, my repayment schedule arrived in the mail. I did what any neophyte advertising executive earning an entry-level salary would do. I panicked. The statements, full of financial legalese, made me queasy. I lay awake nights doing the math, trying to get my monthly salary of $2, 300 to magically cover the $1, 000 monthly payment my lender was asking for, my similarly priced rent and my weekly ration of ramen noodles. It wasn't happening. I deferred payments for a year and slept better under the cover of denial.
Twelve months and a small promotion later, I phoned the lender explaining I still didn't have the money. I knew they couldn't put me in jail, but I worried they'd garnish my wages. A cheery representative suggested I consolidate my loans into one so I could make a single payment. I could also lock in my interest rate to protect the loan from fluctuations in the market and extend my term up to 30 years. She suggested a plan of $250 partial interest payments a month. Desperate for a solution and too impatient to read the fine print, I signed on. What the operator didn't tell me was that interest rates could fluctuate to where they are now--a record low. She also neglected to mention that two years later, the principal would be untouched, while the compounded interest would send my debt skyrocketing to nearly $120,000.
I considered bankruptcy: no longer allowed. Ovary donations: too old. Working for Halliburton in Afghanistan: I have ethics. In the end, my family offered to lend me what they could to take the principal out of the six-figure zone. But I still have another 27 years of payments. I'll be 64 when I'm done. By then, the lending company will have made $138,000 off my debt. A new borrower, at 3 percent, will pay back less than half of what I do. Three percent--that's an extra $250-plus a month, savings that could go toward a property down payment or a 401(k) (I will pay off my loan just in time to find Social Security bankrupt).
We've heard a lot about the government's commitment to No Child Left Behind. But how about the middle-aged graduates left behind? As the lender is a publicly traded company whose net income has increased substantially since 2001, it's the shareholders who are reaping the benefits of my 7.4 percent.
Although my debt is extreme, my borrowing, perhaps, cavalier, my intolerance for fine print irresponsible, I'm far from alone: $23 billion worth of student loans were consolidated above 7 percent in the late ' 90s. Today the banks are making 4 percent over the current market rates off those loans, which are owned by real people scraping along in an economy that favors big business over the little guy. We got duped.
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