<p>JA said originally he had $18K in fed loans and $60K in private loans. Way back on pg 1, he informed us that he pays 1% of his loan, or $69/month, which is only for the private loan and the payment would otherwise be $800/month. From what he said, sounds like he has to renew this deal annually. </p>
<p>I don’t see anything wrong with what LongPrime and LP’s S are doing - they took advantage of great rates/terms and are presumably making all payments as agreed. JA is another story since his deal is obviously not set in stone but is the result of some hardship claim. He stated that he still can’t afford the $800/month payment and has a mortgage and a family now. IMO, this is a house of cards waiting to collapse as soon as the bank says no to renewing the hardship rate and requires him to start repaying his loans. Perhaps they did say no and that’s why he left the thread?</p>
<p>Sk8rmom, exactly. Bay made the same point upthread. The reason to start paying down the debt now, despite the favorable deferral package, is that right now JA is in a great position to do it, and later on his position may be worse, not better. He’s betting that by the time he is forced to make real payments, he’ll be making $500k and they’ll be painless. That could happen. But it could also happen that he’ll have a special needs child, job loss, disability/medical crisis (his own or wife’s), etc. AND that the bank starts demanding thousands of dollars a month. That’s an anvil hanging over his family’s head. Right now, when the family is healthy and he’s got a good job, is the time to chip away at that debt.</p>
<p>“what’s the difference between a loan that doesn’t go away but the borrower never pays back and a loan that gets discharged through bankruptcy?”</p>
<p>Huge difference: the holder of the first loan can charge fees in perpetuity that can add up to many times the original principal, all while the principal remains unpaid. You can squeeze a lot of nickels out of somebody if you have their whole life to collect.</p>
<p>Here is quote from one of the links LP posted.</p>
<p>
</p>
<p>This implies that the BORROWER must pay the full 8.5% interest rate and the subsidy ensures that the LENDER gets the market rate plus the premium when that sum exceeds 8.5%? How are LP and LP’s DS only paying 2% to the LENDER? That is one fact I just do not get.</p>
<p>That is correct. Unintentional, Discovered the ramifications of the loans in the later part of 2005, last loan taken, and when there were accusations of undisclosed “origination fees” to the colleges.</p>
<p>INtrst Pd to lender 6.8%=DS obligation @2%+TAXPAYR
SUBSIDY=$5,714= $1562+$4152
INtrst Pd to lender 8.5%=DS obligation @2%+TAXPYR SUBSIDY=$21,656=$4,282+$17,374</p>
<p>Taxpayer is subsidizing DS college, “Fed Family Education Loan Progrm (FFELP)” to the the lender, at an estimate of $4152+$17374= $21626, based on current rates and the scheduled payments.</p>
<p>The loans were Unsubsidized Stafford, and the standard PLUS. We were 100% fafsa family, full pay.</p>
<p>Another common source of financial need–folks with huge Ed Loans may have to help their parents with their medical and/or living expenses as they get older and outlive their assets. There are more & more folks finding themselves part of the “sandwich” generation, with needy folks on both sides–their kids & their parents/grandparents.</p>
<p>Good for you. Lender has a big profit if the loans exceeded the target rate of 6.5 and 8.5%
(1.7 % for Staffords and 2.3% on PLUS). If the loans fell below the target, the Taxpayer subsidized the loan to the targets. </p>
<p>So how did the 2% consolidation came about: The I rate is the weighted average of the loans being consolidated, plus a margin (I forget what it was). Resulting Consolidated Stafford/PLUS was actually a bit more than 3%, which is now 2%. The consolidator lender gives 0.25% discount for auto pay, and ~1% discount for ontime payments for 4-5 years. Borrower gets a “pickatime payment schedule” which included a straight line scheduled 10,15,20,25years with no prepayment penalty, a couple of graduated payments, Income Based (IBR). </p>
<p>The lender is more than happy to give discounts and to encourage a longer payoff. Something like 70% of borrows miss the 1st payment, and 90%+ miss a payment within the trial period. </p>
<p>JA is needs to be thinking on a paying at least the carrying interest, since the later two payment options have the interest capitalized.</p>
<p>In our time, We did know that we could get a Direct Loan from our Uncle, that had the same terms of the Stafford loans. Lenders were making a huge profit (low wholesale rates and a guaranteed profit). The lower the wholesale rates, the greater the profits. </p>
<p>See “Carry Trade”, that BCEagle referenced.</p>
<p>Many students fail to understand that even if their parents pay for their education. It usually also comes from other types of loans. How many parents do not have any mortgage, car loans, etc.?</p>
<p>About a third of homeowners don’t have mortgages. I’d guess that the number without car loans is even higher. We haven’t had any loans since the 1990s and I know other loan-averse parents.</p>
<p>Even if funding doesn’t come from LOANS, it comes from resources/assets that the parents/family could have allocated elsewhere, such as savings, investments, retirement, long term care insurance, etc. Every family needs to make choices and weigh the pros & cons of those choices as best it can. There are always trade-offs; some are less openly visible than others. </p>
<p>Yes, haven’t had a car loan since the only one I had in 1986 that I paid off when I could no longer deduct interest. The next car we bought, we charged with 0 interest for 6 months & paid it off in full when the 6 months was up. All other cars, we deferred buying until we could pay in full. The last car we bought was from a guy who had leased it new for 4 years & only had 9000 miles on it–we got it for only $13,500 (which is what he would have had to pay the leasing company to buy it).</p>
<p>HImom,
You live in Hawaii. ? Big Island, even then just how many trips around the Big Island by road=1000miles. Do really worry about milage or the coconuts denting the hood :)</p>
<p>We don’t get loans for cars; haven’t done so in the 23 years we have been married. We have a small mortgage for our home relative to its value. We really don’t like debt.</p>
<p>No, I don’t live on the Big Island. Heat, salt that is in the air & LOTS of stop & go traffic take their toll, as does regular age. On the Big Island, there is also the volcanic fog, sulphuric and hydrochloric acid as well as very tortuous roads that make cars deteriorate sooner than later. </p>
<p>We keep our cars MUCH longer than many other people just because we feel it is wasteful to dispose of cars that still have a lot of life left in them. We have a 1992 that we gave to S in 2009, a 1998, a 2000 and a 2005 car. We may be acquiring a 1992 or 1993 car that we may give to D. H & I do NOT like debt & hate paying interest.</p>
<p>Not sure how this all relates to high student loans, Longprime.</p>
<p>The woman who had driven the car had just used it to get to & from work (perhaps 10 miles r/t, M-F). I rarely go around the island I live on, but according to one website, it is 119 miles and 4 hours, excluding stops (LOTS of traffic). There are many who rack up a LOT of mileage on our island & in our state, while there are others who don’t. The woman who sold us the car didn’t drive much–I also don’t drive all that much (work mostly from home). </p>
<p>Most people don’t drive around the island but mostly back & forth, commuting like everywhere else. H’s car is creeping up on 200,000 miles & has done a lot of commuting. We hope it lasts as buying a new car isn’t really attractive at this time with D still needing tuition & other assistance.</p>
<p>The Title says it all. “If you can’t do the time, don’t do the crime–a cautionary tale about debt”</p>
<p>Reread JA’s testimony and followup comments and look at the comments in the light that IF he and I had known the true terms of the Federal Family Education Loan Program, we would literally would have save You, the Taxpayer,** 100’s of BILLIONS** in future debt payments. Remember that the $21000+ that you are subsidizing DS’s and JA’s loans on BORROWED money. </p>
<p>I’ll detail some of the ironies, latter.
Gonna watch Harry Potter.</p>
<p>Suze Orman was just on The View . She was asked by someone which you should pay off first-car loans,student loans or credit card debt. Orman said student loans should always be paid first and should be a top priority -because they can never be discharged and they are always hanging over your head, the payments can balloon, your wages or even social security can be garnished,etc.</p>