<p>Looking at this thread, I am starting to sense that the OP is a ■■■■■ - starting his/her first thread with a known controversial topic and pouring on strong opinions. Or perhaps one of those who bit off more student loan than s/he could chew.</p>
<p>In the end, for student loans to be a viable business (one that pays for itself and doesn’t become the next mortgage-debt government bailout), there has to be a certain degree of lenders taking on known risks with calculable returns, in order for there to be certainty in the market.</p>
<p>My best suggestion for this is to require schools offering loans as part of their FA package to supply a percentage of that (depending upon how much debt - the greater the debt, the greater the percentage being held by the school) from their endowment. </p>
<p>Reputable schools go to great lenghts to measure (and tout) their graduates success. They know better than anyone else what the typical engineer or history major from their school earns and what level of debt that should be able to support. They can also put in terms to make sure the struggling freshman gets cut off quickly (limiting losses) by putting GPA requirements on subsequent term loans.</p>
<p>As with any business, schools that make poor choices about who and how much to loan will be quickly punished by a lack of revenue to support their operations.</p>
<p>And with this system when a school offers a student a loan, it is a vote of confidence in their choice and keeps them interested in keeping that choice successful.</p>
<p>And while the returns on a student loan portfolio may not match what some money managers can return, with the stock-market meltdown we saw, there could be something said about having your investments where you control the spending.</p>
<p>Student loans are financial aid for colleges and not for students. They allow the colleges to artificially inflate costs and then they say it is “aid” for the kid, but it is not. Colleges who claim to meet 100% of need but do so with loans are giving themselves financial aid and not the student.</p>
<p>Student loans are not the only debts non-dischargeable in bankruptcy, as the OP alleges. Congress has made a series of debts non-dischargeable based on its view of public policy. For example, alimony and child support payments are not dischargeable in bankruptcy because Congress does not want children to go hungry. Intentional torts (punching someone in the nose, for example) are not dischargeable because Congress does not believe people should get out of judgments based on such actions. The list goes on. As for student loans, Congress feared a long line of doctors, lawyers and other professionals on the cusp of making big salaries running to bankruptcy court just after graduation to discharge their student loans just before taking their lucrative first jobs. For those students not in this position, they may petition the bankruptcy court to discharge their student loan debts based on extraordinary circumstances. </p>
<p>The bottom line is that this rule does make sense.</p>
I think the idea that huge numbers of doctors and lawyers were going to file for bankruptcy is a nice bit of scaremongering. By the time these people finish med school and law school, many are married, have bought houses, have other significant assets and salaries. And the courts aren’t stupid - if they see you have a high salary or an expectation of one, you will not be able to just walk away from your debts.</p>
<p>And there would be ways to mitigate this risk - for example, you have to wait for at least 3 years after you get out of school before you can attempt to discharge your loans.</p>
<p>I totally agree with those who state that some kids just don’t understand what they are getting themselves into by taking out large student loans. Some of the teens I talk to believe that they will just be able to borrow,say, $20,000 (yes, one I know mentioned that number) a year if they don’t get enough aid, and have no problems owing $80,000 (they forget about interest) when they are 21 years-old.</p>
<p>Bundle is right…I’ve talked with so many kids who have no concept of what it’s like to make a payment evey month for years and juggle living expenses too. Unfortunately, personal finance is an optional elective in high school and too many parents just never teach their kids anything about money management. In my family, it is a “must take” class for seniors to make sure they’ve heard everything at least twice!</p>
<p>I’ve played the Monopoly money game with my kids for years whenever they get “pie in the sky” ideas of how much money they/I have or will have, or to explain how loans, taxes, and savings work, so now they’re very careful with their money and debts. Yesterday an acquaintance said her daughter will “just have to live at home til her loans are paid off”! That’s $20K+/year, which they cosign and can’t afford either, for a degree she could be getting at a better public school for half the cost or less. The kid doesn’t even like her LAC and comes home every weekend! I just don’t get it…</p>
<p>notrich: How many doctors and lawyers buy houses before they graduate? Regarding your claim “courts aren’t stupid - if they see you have a high salary or an expectation of one, you will not be able to just walk away from your debts” the means test was implemented in October 2007. Prior to that, anyone could file for chapter 7 bankruptcy regardless of income. It’s also important to understand that future income is not considered in chapter 7. </p>
<p>Your claim that “the actual process is quite time consuming, invasive, and humiliating” is incorrect. A typical chapter 7 is none of these. Once the petition and schedules are filed, the debtor has to spend only a few minutes in a meeting with his or her trustee. Although this meeting is conducted under oath and recorded, as long as the debtor listed all assets and liabilities, this meeting rarely last more than 5 minutes. The trustee simply verifies that the debtor listed all assets and liabilities. It isn’t invasive at all. After that, a discharge is entered and the debtor is free and clear. It is a very easy, painless process for most chapter 7 debtors. </p>
<p>Also, most debtors file chapter 7 and in that chapter there are no payment plans, wage garnishments, or any actions whatsoever. Only in chapter 13 must a debtor have a repayment plan. </p>
<p>Lastly, there is no longer a social stigma to filing bankuptcy. In the 1960s, bankruptcy was considered shameful. By 2005, it was considered a financial strategy. This is why Congress passed the Bankruptcy Reform Act in 2007.</p>
<p>If student loans were dischargeable, no student in their right mind would repay their loans and the system would collapse.</p>
<p>I completely agree. I have the term “Financial Aid” unless it’s free money. When I go to the store and they try to get me to open a charge account so that I can shop there on credit, THEY DON’T CALL IT FINANCIAL AID!!! </p>
<p>I feel so sorry for the numerous students and parents who get misled by fancy school mailings that insist that they have “generous financial aid packages”. To the naive person that means “free money” for a need defined by the family. </p>
<p>The sad thing is that many families don’t realize any of this until it’s too late. Spring comes with the F/A packages and the families then realize that if they don’t take out the student loans their child won’t go anywhere since it’s now too late to look elsewhere.</p>
<p>Yes, a few qualify for grants and work study, but most do not. And, that isn’t told up front.</p>
<p>I agree with mom2collegekids. Having a “genorous finiancial aid package” doesn’t really mean much if the package consists of 90 percent loans. I think that students and parents who need financial aid should seek out colleges that give most of their aid in the form of grants/scholarships, and ask colleges for specifics about the breakdown (grants/loans) of their “generous” aid.</p>
<p><<<<
I have the term “Financial Aid” unless it’s free money.
<<<<<</p>
<p>Oops…typo in my #28 post…That should read…I HATE the term “Financial Aid” unless it’s free money. LOL</p>
<p><<<<<<<<<<<
I agree with mom2collegekids. Having a “genorous finiancial aid package” doesn’t really mean much if the package consists of 90 percent loans. I think that students and parents who need financial aid should seek out colleges that give most of their aid in the form of grants/scholarships, and ask colleges for specifics about the breakdown (grants/loans) of their “generous” aid.
<<<<<<<<<<</p>
<p>The problem is people don’t know what they don’t know. If they think “generous aid” means free money, they aren’t going to know that they need to ask for specifics. I see this all the time. And, here on CC, every spring there are parents and students who are shocked and dismayed to see that their F/A packages are just a bunch of student loans. Plus, many are shocked to learn their EFCs and realize they’ll have to borrow to cover that, too. So, borrowing for F/A and borrowing to cover some/all of EFC… All this bad news after getting pretty college mailings for months bragging about generous F/A. :(</p>
<p>Right. Last year was the first year I was on CC, and the whole financial aid thing actually brought me out of lurking to comment. I was horrified to hear kids thinking of taking out 200000 in loans (!) to get a college education. The cost of loans, as we all know, are so much more than just the loans.</p>
<p>But, the question that comes up for me around this issue is why GC’s don’t go into this very, very heavily during the application process. I mean, there ought to be some mandatory meetings in which “meets full need” and the place and price of loans is discussed. I know it is not politcally correct to talk about it, probably, and the party line is “you can go anywhere you can get in.” But…I think it is really a disservice to these very young adults not to explain that if college is meant to make your life better? That kind of debt is a huge drag on any benefit you might recieve from an education. Just my opinion.</p>
<p>Let’s see … no loans. That means no assistance for families earning more than $40,000 (just a rough estimate using $8500 annual tuition) at my relatively inexpensive public university. The reality is that the majority of families at this income & at much higher incomes have not saved for college nor are they prepared to pay for college out of current income. These families will STILL want to borrow, even if loans are no longer available. And there WILL be lenders who will be happy to fill the void of educational lenders … it will be especially lucrative without any kind of oversight. The more risk they bear, the more these lenders will charge in interest, of course … and students/families will blindly borrow regardless.</p>
<p>This is the reality of America. We want what we want, and we will borrow to have it. Financial aid offices can stop offering loans in their packages and the government can get out of the educational loan business. But folks are still going to borrow.</p>
<p>It is all well & good to say that colleges should just lower costs & somehow the need for loans will disappear. Consider my school, though. At $8500 annual tuition, a family earning $90,000 a year “should” be able to afford tuition without borrowing. Many such families borrow the entire amount of tuition plus extra for books/etc. These are unsubsidized loans. So just how low do we have to go with tuition to get to the point where people will be happy with the cost? FREE, I guess.</p>
<p>Maybe that is the next step. Then we’ll have angry CC’ers who want the ivies to be free for all, too, I’ll bet. It never ends.</p>
<p>Well, we have no problem paying for our kids education. We’re not even in a position to get financial aid. My point is really that 18 year olds do not understand the real cost of debt. Given the complete train wreck our economy is in, right now, most American’s don’t seem to understand the cost of debt, but there you have it.</p>
<p>I do believe that GC’s ought to discuss this more fully as a part of the process instead of simply saying, “Apply and you can figure out how to get the money later.” There were a number of incredibly diappointed kids on this website who seemed to believe that just because the college or the GC said they could figure it out later that they would actually be able to figure it out. Many were not this year.</p>
<p>But I’m not personally “angry.” It has no effect on my or my children’s lives at all. It was just heartbreaking for me last year to hear the sadness and angst of kids whose expectations were unrealistic, or the defiant tone of education majors taking out 200000 in loans because they “could.” Education would seem, to me, to be about educating the kids about all sorts of things…this includes the cost of debt.</p>
<p>Poetgrl, I do not disagree with you. I agree that GC’s should not advise students to ignore financial realities - although I do feel that students should certainly try for schools where they “might” get enough aid (but they also need to understand that if they do not, then they should not attend). </p>
<p>More than that, though, we need to educate our families about debt - educational and otherwise. I don’t know the answer, I just know it needs to be done. Ideas include personal finance courses in K-12 school (that would also include college financing discussions), community workshops aimed at helping parents (and other adults) understand what debt IS, etc.</p>
<p>We have offered numerous workshops at my college aimed at helping students understand debt, learn to live on less, etc. We offer a $1000 scholarship at each workshop, and we still get extremely low attendance. </p>
<p>Students are required to do entrance counseling before borrowing Stafford loans. Parents do it for their kids many times - that is not a good idea, folks. Many students who do it on their own don’t really read it (you can just do it over until you pass) - and if they read it, they don’t really understand it (nor do they ask when they do not understand). </p>
<p>We give students information that shows them the effect of borrowing. It doesn’t seem to make an impact.</p>
<p>Thursday, an 18 year old called me because he thought he should have received a larger refund. He had $10,000 in grants and $9500 in loans (parent PLUS denial). He lives in the dorms with a full meal plan, and he received a refund of $1853 at the beginning of September. He wants to borrow more, telling me he needs to buy his books (school started in early September - this phone call was October 8th). I asked him what happened to the refund check. He laughed & told me American Express needed it. THAT is the reality I deal with on a daily basis.</p>
<p>No, I know you are right. The truth is we live in a debt-culture, top to bottom. I’m not sure what the answer is, either. I would like to see some emphasis put on this in the lower grades, since it is really rather important. But, yeah, I mean, grown up economics experts barely seem to understand the long-term cost of debt. How on earth can you get a college student to understand the future.</p>
<p>It is sad, though. I’m sure you find it incredibly frustrating.</p>
<p>I am not an FA officer but am a parent and a student. From my limited experience I am surprised at how little people keep tabs on their own financial situation as regards college. I know to the penny what I am expecting in refund and also what my daughter is expecting (she likes me to keep tabs on the financial stuff so gave me her password to her financial aid page). When my refund was less than expected I was able to get it sorted out pretty quick (my Stafford loan had not been certified by the school - for some reason there was a blip in the system and it happened to a bunch of students). Later bumped into my son’s girlfriend (well ex since then) who was in a panic because her refund was so low but had not queried it. She had no clue what she was likely to get. I told her to go check her loans out and she had the same problem. This would not have been resolved without her going and asking about it as it seemed rather random who it happened to. She had not even investigated and did not seem to have plans to. I asked her if she does not keep tabs on what she is expecting and she said she liked getting a surprise. Not this time though! </p>
<p>There does need to be some sort of financial education going on. I am constantly surprised at how little effort some students make to try and save money in areas such as books. I stood in line behind people paying enormous sums for books this semester. if I had just bought them at school I would have paid nearly $800. I ended up paying a little over $200. I have to pay those loans back so they are not magic money that I am willing to blow off. That seems to be the attitude of some students.</p>
<p>Well said, SCM! D’s friends all were surprised when she bought some books online instead of just ordering from the bookstore. Apparently their big loans didn’t deter them from taking the easy, expensive route. She also thoroughly searched for the best price she could get on a very good business class laptop. We didn’t do as well as you did on the books (only one was used), but managed to save $300 this semester and her $1300 computer ended up costing her $650 on sale with a $200 rebate. She also thinks it’s funny that her friends all have the biggest meal plan and can never manage to use all their weekly meal swipes, much less the extra dining bucks that come with it. She chose the smallest plan and uses her dining bucks for lunches (savings $300/semester) and should have close to $0 left by the end of the semester. Yes, it took an hour or two to figure out how to save that $1300 but it sure wasn’t rocket science! She took only what subsidized loans she needed (I think her refund was a few hundred due to a deposit I’d paid and forgotten about) and has enough left from her grad and summer job savings to cover next semester’s books and a summer class (which she has me “shopping” for now, lol). She hasn’t touched her college fund or her savings bonds yet, and wants to save them for grad school or to buy a car when she has to do rotations.</p>
<p>It’s apparent from kelsmom’s stories that the easier it is for most people to borrow money the less likely they are to figure out how to make do on less. Little do they know they’re missing the thrill of the hunt, lol!!</p>
<p>I wouldn’t advocate “no loans” - but I don’t like that many families have no idea that their f/a packages are going to be mostly or all student loans. I know this from talking to people. During the fall months, these people happily declare that their child has applied to schools that give away money and have generous F/A. They think they’ve talked to the “experts” (the schools) so they don’t heed my (or others’) warnings.</p>
<p>Then…spring comes…and OMG…there are those pesky student loans that dominate their F/A packages. Many of these people would have made other application choices if they had known. I just would appreciate more honesty from colleges in regards to F/A. They should stop saying they’re generous with F/A unless they’re giving free money away.</p>
<p>owlice: You’re recalling an America that no longer exists. A generation ago, bankruptcy (along with adultery, abortion, fornication, etc.) were socially unacceptable and anyone filing for bankruptcy was scorned. Come with me to today’s America. In California, 1 in 4 adults have filed for bankruptcy relief – and that number is growing. There is no social stigma in filing for bankruptcy today, so please compare apples with apples.</p>