The Evils of Negative Amortization

Lately I've been addicted to reading other people's PF blogs like Sallie’s Niece or My Debt Blog. Like me, they are also struggling to pay down onerous student loans. It's a bit depressing that I'm 10 years older than these bloggers but I haven't made any more progress than they have in eliminating my debts.

Where did I go wrong? Ahhhh... I fell for the easy lure of student loan forbearances. After graduation, I sought (and received) many forbearances and the interest kept accruing.

I'm truly embarrassed to admit that I never understood the concept of "negative amortization" despite the fact that I graduated with an Econ degree. (I graduated from undergrad in 1994. Yes, readers, I'm a slow learner.)

Just to illustrate, I graduated from a second-rate law school in 1998. (All of my student loans are from my legal education.) My original balance on my private loans in 1998 was $47,325. What's my current balance? $49,136.14 as of 7/31/08!! Although it's been 10 years since I graduated, I'm $1,811.14 over the original balance due to negative amortization.

Since I kept shoddy records, I'm not sure how much I'm behind in my Federal Student Loans. But I'm sure it's also in the thousands.

Don't get me wrong. There were times when I REALLY needed the forbearance, like when I was laid off in 1999. But other times, I just wanted to free up money to play. The bottomline is, I should have used the forbearance option sparingly and only in emergencies. I didn't and as they say, I'm paying the piper and robbing myself of financial security. One of the many life lessons I had to learn the hard way. Sigh....