Student Loan Management Mistakes: How one mistake added $10,000 to my debt

Today I tell the story of how small mistakes with a student loan in the middle of my surgery residency led to an extra $10,000 of student debt!

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It was a couple of months into my third year of surgery residency in Los Angeles.  A typical day would start with waking up around 5AM to get to the hospital around 5:30AM to “round,” or see patients recovering on the hospital floor, before heading to the OR by 7:30AM for surgery.  We’d finish up in the late afternoon, see our hospital patients again, and then head home around 7PM. Then, rinse and repeat the next day!

Needless to say, the majority of my time was spent furiously treading water, barely keeping my head above water.  It was an exhausting yet exhilarating experience, and marked the first time I was consistently getting experience with surgery, under the watchful and often disapproving glare of my supervising surgeons (AKA attending physicians).  

My student loans

At this point in time, I was making minimal, income based repayments on my student debt from four years of medical school.  While the sum total was an impressive number of around $250,000, it was actually much lower than a lot of my other resident friends, some of whom owed over $300k!  Based on my fairly standard resident salary of about $45k a year, I was making payments of about $100 a month, which was calculated as 15% of my discretionary income.  To qualify for this program, I had consolidated my federal loans into one lump sum, with a fixed interest rate of 6.8%. While high, this was and still is the going rate for student loans.  

Set it and forget it

I’ve always been a huge fan of “set it and forget it” style banking, so my payments went out automatically from my bank account.  One less thing to worry about, I thought, as I set up the payments.  By this point, my loan had been bought and sold a couple of times, and my loan servicer was a group called Aspire.  Their communication was a bizarre hodgepodge of mailings and cryptic, unhelpful e-mails. At most, they directed me to log in to my “secure message center” online, where I would have to find the appropriate pdf, which usually was just a payment confirmation.  After the first few months, I mostly ignored these emails.

My automatic payments had gone out like clockwork for the first couple years of residency.  Of course, the $100 payments were not even enough to cover the interest on my loans, so my debt was steadily growing.  However, as long as I stayed on the IBR program, the interest would stay in a side pot, leaving my principal debt the same $250k with which I started.  My debt grew at just over $1400 a month during this time.

But a couple of months into my third year of residency, I got a letter in the mail.  I read, in shock, that I had failed to recertify for the IBR program and had been kicked into standard repayment immediately!  Not only was my monthly payment going up to $3000, but my side pot of interest was going to capitalize.

Loan capitalization

When it comes to student loans, capitalization is dirty word.  It means that the side pot of interest, which at that point was about $35,000, was going to be dumped into my principal debt, causing my debt to grow even more rapidly; in this case by an additional $200 a month.  It doesn’t sound like much, but by the end of my six years of residency, this mistake grew my debt by an additional $10,000 that I could have otherwise avoided.

Conclusion

It turns out, mistakes with a big student loan can be very costly. How did I handle it?

I swiftly moved from shock to denial, then to anger, both at myself and the poor communication from the loan servicer.  I couldn’t find any record of the IBR recertification document that they had claimed to have mailed to me months prior. Bargaining with them failed very quickly, so over the next couple of weeks, I grieved over my finances and then accepted the situation.  I recertified for IBR, paid the penalties, and resigned myself to the debt.

— TDD

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