Borrower beware! (Student Loans)

<p>There was an article not too long ago in the WSJ that focused on the downside of student loans. I was surprised to learn that unlike almost any other type of loan, personal bankruptcy won't relieve you of your obligation to pay. Lenders aggressively pursue borrowers who are unemployed and/or disabled and unable to work. </p>

<p>This article from Newsweek is a personal account of another downside - debt consolidation (refinancing) is only allowed once. I think people automatically assume that student loans are the cheapest and best way to finance a college education. But they really need to know what they are getting themselves into before they borrow! </p>

<p>I am a little slow - I had to read the title twice to realize she was not "worried about paying the mortgage," but rather her brain (mind) has been mortgaged. </p>

<p>Struggling to Pay the Mortgage on My Mind
Saddled with loans and tied to my lender for 30 years, I'm an indentured servant at 7.4 percent
In the red: Marrian's debt is extreme
By Anna Marrian
Newsweek</p>

<p><a href="http://www.msnbc.msn.com/id/6884900/site/newsweek/%5B/url%5D"&gt;http://www.msnbc.msn.com/id/6884900/site/newsweek/&lt;/a&gt;&lt;/p>

<p>Thanks for posting...I'm definitely going to consider my options more carefully after reading that.</p>

<p>That is the danger of loans, H and I had close to $50K in loans when we finished school, and that was a mortgage in some areas back then. It was a long struggle to pay them off. My niece is in for $160K, but since she will be a physician, she hopes that it will not be too painful, and there are many in her med school graduating class that are in the same boat. My nephew is 30 years old and has made a nice dent in his med school debt already, but he worries as he is pondering a fellowship and would like to go into research. Those numbers point to a lucrative private practice to get paid down. </p>

<p>This is why kids need to think long and hard about taking out large loans. As private college costs hit these big numbers, it is going to be a long time before you make enough to pay off those loans. And if you think you might want a masters, well, that means more tuition payments or loans. Most PHD programs offer subsidies and stipends of sorts, but part time masters programs, or professional programs are usually full pay. </p>

<p>It's not just the kids either. I know a single mom saddled with huge loans that she took to pay for her son to go to college and then dental school. He has loans too. She has no savings for her old age so he is now her retirement plan. He really should have gone to a local state school which would have prepared him as well, but she wanted him to get exactly what he wanted. Well, now they have to pay for it years down the road. It is not easy. I have gone through this myslef, and I can tell you that families do need to think seriously about taking out massive loans for indeterminate goals.</p>

<p>This should be posted on the kids' board - so many of them ask about large loans. In my family, only one [extended] family member took out loans - and it was just $17,000, being paid back at 2.34%. I cannot imagine facing what the woman in the story is facing.</p>

<p>I don't like student loans. This article shows why.</p>

<p>one of the reasons I decided to go to community college. thank freakin god.</p>

<p>we didnt have student loans but we considered bankruptcy because of medical bills that weren't covered by our insurance
Hospitals did not agree to a payment plan, and turned the accounts over to collection agencies that charged 25% interest.
We eventually paid them off after living on bread and water for 10 years, but it makes me feel better than we are not the only ones
<a href="http://www.forbes.com/lifestyle/health/feeds/hscout/2005/02/02/hscout523782.html%5B/url%5D"&gt;http://www.forbes.com/lifestyle/health/feeds/hscout/2005/02/02/hscout523782.html&lt;/a&gt;&lt;/p>

<p>Interesting article - study of bankruptcies tied to major illnesses.</p>

<p><a href="http://www.comcast.net/News/HEALTHWELLNESS//XML/1310_General_financial_business_news/691a6f6e-3ada-49e2-ae93-982aa72729ff.html%5B/url%5D"&gt;http://www.comcast.net/News/HEALTHWELLNESS//XML/1310_General_financial_business_news/691a6f6e-3ada-49e2-ae93-982aa72729ff.html&lt;/a&gt;&lt;/p>

<p>The WSJ article was even more heart rending. Numerous detailed cases of people on disability having 15% of their meager disability checks garnished. Detailed stories of how understanding Federal Bankruptcy Judges have their hands tied by the appelate courts that refuse to discharge these loans under "hardship' provisions as government attorneys argue people with partial disabilites, who are still working should cancel their gym membership or internet so that they can pay more.</p>

<p>As I have said I have personally known of a 67 year old retiree who is having 15% of his ss retirment check garnished for a loan he cosigned off on many years ago for a drug addicted daughter who he hasn't seen in years who is not paying on her loan.</p>

<p>You have to be careful with these loans. The one consolidation rule is unconscionable and should be aboolished. What earthly reason could there be for that rule?</p>

<p>O.K. I'll bite. How did Anna get $105k in loans? For undergrad and 2 years grad school? I assuming without any substantial credit history as she bummed around Europe for five years after high school? I was assuming a "middle class " student could only access a max of ,let's say $55,000 even if their parents didn't qualify for Plus Loans.(Isn't it like $2625,+$4000 for freshman with non-qualifying parents - scaling up to about $5600 +$4,000 for juniors and seniors, and grad?) Obviously, I am wrong again. Why am I not surprised? </p>

<p>How did she get that far in debt? The lenders knew the repayment terms whether she did or not. I assume she wasn't failing to report the existence of loan A when applying for loan B, so what idiot institution would loan someone without a job the last 50k of that horse-choking $105,000 and , more importantly can you get me their home number?:rolleyes:</p>

<p>There are a couple of things the government can do better than the private sector.
Why does the governement need banks to administer student loans? The banks are just useless middlemen that need to make profits.</p>

<p>Why don't we have the government insure medical costs instead of insurers like Blue Cross? The government doesn't have to make money so they can be more efficient, not less.</p>

<p>I read somewhere that medicare has administrative costs of 2%, private insurers around 16%.</p>

<p>It is obvious to me there are costs that can be saved by moving these costs to the public sector.</p>

<p>And another thing, why aren't we buying car insurance at the pump instead of through agents? Insurance would be much cheaper if we bought it at the pump.</p>

<p>A great article about Social Security written by Paul Krugman in the NY Times today. Privatization isn't going to save Social Security. </p>

<p>Corporations have really taken over.</p>

<p>Curmudgeon, I know a young lady who is planning to take out $60K in loans over 4 years for a school that is very much a private, local school. She has taken out $15K for this year. For the other $15k which her noncustodial parent is willing to pay, she could have gone to either her state school or the one in her father's state. She wants to go to this school where she has to borrow. The loans have been given to her with an adult co-signer, I would guess they are those Connecticut state loans which are low interest and you can roll the payment back so you are not simultaneously paying the loans while in school which means she will owe the face amount and the interest as she is deferring the payments. Now the interest rates are much more favorable than Anna's, but this girl just turned 18. Anna was independent at the time she took out the loans at age 24. </p>

<p>I don't quite understand the loan consolidation rules. Everyone I know with Plus loans is inundated with offers to consolidate. Am I right in understanding that you can keep consolidating as long as you are taking out more loans? In other words, can you consolidate freshman year with sophomore year, and so on, until you are done? If so, could she just take out a small loan by taking an inexpensive course and then be able to consolidate the whole ball of wax at today's low rates? If any one knows, I am interested.</p>

<p>I have a personal rule of thumb: the total amount of student loans should not exceed the amount of money the student reasonably expects to earn with a first year salary at an entry-level position relevant to the degree being obtained. By "reasonable" and "entry-level" I mean that for purposes of the debt formula, the student should assume that the job will be on the low end for whatever is typical for their major. So, for example, a law student should calculate based on what first year salaries are in the public sector (such as the D.A.'s office) - not at the top wall street firms. </p>

<p>I came up with this idea because it is reasonably certain that a college grad will be able to get a job at the lower end of the pay scale for people holding equivalent degrees -- so it might be reasonable for a liberal arts major to take on $25K in loans because (by my formula) - she should be able to get a job that pays $25K annually. Based on <em>current</em> interest rates, student loan payments are about 1% per month for the total amount -- on a $25K loan, the monthly payment is roughly $250 -- so my little rule results in what I think is a manageable monthly payment.</p>

<p>I don't think it is a bad thing for a student to take some responsibility for their own education, including some debt -- but in the end you have to relate debt to income. </p>

<p>I didn't know about the loan consolidation rules -- though I would note that it always possible to pay off any debt by borrowing from another source. I think the person who wrote the article clearly is way too far in the hole to qualify for another loan -- another reason to keep the loan total down in relation to expected income. The writer's problem is not only that her loans are too high, but that they are so high she has no hope of qualifying for any sort of replacement loan.</p>

<p>The federal government does have rules regarding the amount of loans a student can take, particularly the subsidized ones. The amount does increase each year. That might also serve as a guideline on what is reasonable for the student to repay. I believe you need a co-signer for more which puts that person on the spot if the student reneges. </p>

<p>The consolidation would be another educational loan and would perhaps up the monthly payment and finish the loans sooner, and at a lower interest rate. But there are rules on average interest and other things that make this a very complex endeavor. But it is worth a try. I know my niece's loans are way over hers, and that is not unusual for med students, but you can consolidate them each time you take out a new one even if your have consolidated before. I have read the literature, and I do believe she has consolidated more than once, and may do so again soon as this is her last term, if the interest rates are still good. She wants a fixed rate in case the interest rates go up. You know, I am not even sure she knows the full terms of her loans and consolidations.</p>

<p>my best friend from high school went to NYU with no money from her parents at all, completely on loans. i don't even know what her final loan amount was, but i know it was a LOT. all of the money she made working while in school paid for her apartment, and food.</p>

<p>I have to agree with the person above who stated that the maximum amount the federal government's Stafford loans will let you borrow should be the maximum you should take out to pay for school (I think it is somewhere aroun $20,000?). </p>

<p>I've always believed that a college education is a lot more about what you put into it and take advantage of than the particular school you're attending. Last year, as a high school senior, I considered taking out $80,000 of debt to attend Dartmouth or Cornell. I'm so glad I didn't. I can't even imagine starting my adult life with that much debt hanging over me.</p>

<p>EEH, which school are you attending and how do you like it?</p>

<p>I go to the University of Southern California. It is alright. The classes are bigger than what I would like, L.A. is worthless without a car, and I am somewhat disappointed by the student body in general. Would I rather be at Dartmouth or Cornell? Yes I would, but I can't justify going into that much debt for it. If I was faced with the same choice, I would have made the same decision.</p>

<p>EEH, that's not a raging endorsement.</p>

<p>Student loans and PLUS loans are great. Each company has their particular rules within the rules of the Guarantor (sallie mae). In fact the rules and disclosures are much better on a student loan than on a comforming home loan which means that you have to be informed on the loan details on student loan. With that said- do you really understand your home loan? </p>

<p>We have higher interest rates on home mortgages because we allow home mortgages be included in bankrupcy. I for one do not like to subsidize someone's bankrupcy nor do I enjoy paying a higher interest rate for this subsidy and at poorer terms. </p>

<p>We enjoy low cost student loans in exchange for liberal terms that can work for or against you. Understand the loan terms and you can be a winner. Ignor the terms and you lose. Stupidity is one thing may not be your fault. Ignorance is your problem. </p>

<p>Sorry to be harsh but the reality is that our kids learn a very expensive education yet learn nothing about their compensation (money) and how to use that hard earned money.</p>