We Cosigned Our Unemployed Son’s Student Loans. Now We’re Screwed

Parents Forum
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<p>A lot of employers go for reputation; also most of the Comm School friends I know managed to land at some sort of big institution – BlackRock, Morgan Stanley, E&Y … my friend at MIT who was a computer science major got recruited by a hedge fund after her first year. You just couldn’t get that sort of opportunity at a community college.</p>

<p>Some of my friends have collaborated with people from their school and are breaking out into their own enterprises and projects in various fields. Some of the projects (unique software, engineering designs, etc.) aren’t a full-time thing, but they are career assets that probably couldn’t be fashioned with community college contacts.</p>

<p>Also the chances that you will repay your loans after graduating from MIT is quite high, even if they are $200k.</p>

<p>Then there are those who end up becoming paralegals to legal firms (as opposed to going to law school); there the prestige of the bachelor’s degree is quite important for some of the firms in Washington D.C. and NYC, etc.</p>

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<p>Simple solution - Get the government out of the lending business.</p>

<p>The fact that many home loans were federally backed (Freddie/Fannie) and that the government was encouraging/requiring banks to make non-credit worthy loans contributed heavily to the 2008 housing bust. Congress’ “noble” goal was to get home ownership for more people, the problem being that some of those people did not qualify for the necessary mortgage. But by making the loans federally backed, the lenders were “off the hook” on creditworthiness considerations. Make the loan, sell it to a mortgage broker and don’t worry - it’s not your loan anymore.</p>

<p>With student loans, it is much the same problem. Congress wants to make it “easy” for everyone to attend college. So, Congress has subsidized loans and federally insured loans (like the Fannie/Freddie loans). So on those loans the banks are again “off the hook” on considerations of creditworthiness. Make the loan, forget about its repayment terms. The problem was that there were still groups of students who either did not qualify for or had used up all of the subsidized or federally back loans, but still needed more money. So, what Congress did was allow the banks to make loans to these people, and even though they were not federally subidized or backed, these loans were effectively non-dischargeable in bankruptcy. And once again the element of creditworthiness is completely removed from the equation.</p>

<p>Now the problem.</p>

<p>If you remove these government backed subsidies or loans, fewer people will be able to qualify for homes or college. The housing market will shrink (although perhaps not that much more inasmuch as mortgage money is tight right now). Colleges will cease to exist or have to sharply reduce the COA. Or perhaps only allow bankruptcy dischargability to non-subsidized/federally backed loans (to protect the American taxpayers). Then students would know up front the limits of their borrowing. Maybe they decide that State U is a better choice that a pricey OOS private. Make the bankers make good banking decisions, looking to the borrowers, not the government, for repayment.</p>

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<p>Hasn’t the “welfare queen” thing been repeatedly proven to be a myth? (See, for example, the food stamp challenge last year where it was shown that people are <em>far</em> from dining in luxury on food stamp allowances).</p>

<p>On another note, it amuses me how much hypocrisy this thread brings out. Some of the same posters decrying people for sending their kids to expensive colleges for “impractical majors” are doing the exact same thing themselves,</p>

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<p>Yes, psych, but why ruin a perfectly good rallying point myth with some facts? ;)</p>

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<p>Eh – that’s not what Singapore does, and it’s the free market darling of the world. Singapore has large budget surpluses year after year, because of the return on many of its investments esp. via Temasek Holdings. In fact, I think most of the student loan problems occur because the government is outsourcing lending to private companies, with large public externality issues. It should lend directly and make the profit itself.</p>

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<p>Singapore is an extreme example of a pragmatic mix of socialism and capitalism. </p>

<p>I have not looked into how they fund higher Ed but my I believe that my relatives there just paid for it out of pocket. Maybe low tax rates make it easier to save.</p>

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<p>I had a look at a paper on Singapore higher Ed costs and they are generous. I did not see anything in the way of need aid or merit aid and I did not read about how a student gets accepted but they very well might ration slots.</p>

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<p>I think it’s common sense that if you’re taking out a bunch of loans for an impractical/unmarketable major, it’s going to be a pain to pay back. </p>

<p>However, the problem extends to marketable majors, too. Plenty of people take out loans for law, medicine, engineering, finance, etc, and face tough job prospects in the end and debt that prohibits options.</p>

<p>It’s a problem from all sides. Kids overestimate their strengths, lenders make it too easy to take out huge loans without sufficient due diligence, colleges keep raising their prices, parents and kids alike may not understand the risks, personal finance is not really taught in high school, employers at job firms care a lot about school quality, etc. In the end, it’s an investment decision where people feel that the loans are worth it, because to forgo a higher educational opportunity is deemed a risky move.</p>

<p>If you’re cosigning loans, odds are you’re engaging in a negative-NPV investment. Choose a cheaper school.</p>

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<p>evita…There certainly are opportunities available at some of the major prestigious universities for students in certain majors/career paths, but it’d be a pretty risky gamble (in today’s job markets in particular) to bet a 5 or 6 figure debt on cashing in on one of those opportunities. Some families may find that risk worth taking, and hopefully their student graduates into a situation where they can repay whatever they needed to borrow. In many cases they do/can, but in many others they cannot. There have been numerous threads discussing the number of under-employed graduates who “bet the bank” to attend a bigger name university only to find themselves with a very expensive (but lovely :slight_smile: ) diploma to show for it…and little else. My point was simply that families need to more thorougly evaluate their particular situation with a realistic risk/reward outlook instead of automatically assuming the “brand name” is the better buy. Some will win big but many will crap out. I’d congratulate those that gambled and won, but I can’t feel overly sympathetic for those that gambled and lost…especially if they had more cost effective options that they bypassed.</p>

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<p>OK, not to dispute the details of the article, but I’ve had several student loans which were administered by Sallie Mae -</p>

<p>they wouldn’t allow him to consolidate his loans? I’ve never had an issue with consolidation and if Sallie Mae honestly wouldn’t consolidate the loans, then they should have been able to get another lender to do consolidation, but often consolidation doesn’t reduce payments significantly, alhtough it can reduce payments a little, often it is just easier to manage a single payment.</p>

<p>he couldn’t change his payment plan? I’ve never had a private loan, but I assume that Sallie Mae manages private loans similar to the govt backed loans they manage, with all my Salllie Mae managed loans, I was able to select different payment plans online see the estimated montly payments as well as the estimated total interest and total amount payable and then after evaluating scenarios, could submit an application online and except for income based plans which require additional paperwork would be approved and changed immediately. </p>

<p>$26,000 was due immediately? Since when do ANY student loans have balloon payments? I have student loans from my undergrad years, have student loans from my grad years, my parents had parent loans for my undergad years, and I looked into loans for my son’s undergrad years, sure there are flat payment plans and graduated payment plans, but I have yet to see a balloon payment on a student loan and especially not from a legitmate lender like Sallie Mae</p>

<p>@Hat - removing govt backing on student loans would create a wider divide between our society’s haves and have nots - colleges could still charge their choice of rates but only those that could afford to pay full freight or those that had established credit and could borrow the money could attend, those without money, those with poor credit wouldn’t be able to afford the degrees… those doing hiring in industry are going to do so from those with the degrees who in turn value their degree and will value those who have the degree, perpetuating the separation between the classes. The govt backing exists to make a degree accessible to every student from every income level, but the govt has strict cotrols on the amounts of loans that students qualify for and it should be manageable debt especially over the 10-20 year time frame for repayment</p>

<p>Private loans are definitely not just a lower class phenomenon. I am a middle income single parent, I earn approximately $60K per year and our EFC was approximately $11K per year, which would have been DIFFICULT, but achievable, with A LOT of cut corners. Our state flagship is $20K per year, they offered my son $2K per year in grants, leaving $18K per year to pay. $18K - $11K EFC leaves $7K per year, more than a freshman is eligible for in Stafford loans. We’re not located near enough to a college to make commuting a reasonable option. Fortunately my son got significant merit aid at another school, but if he had not I would not have hesitated for a second to get a parent loan or co-sign a loan ensuring that he had enough available to cover his costs, of course that would have been for $2000-5000 per year and would not have been for $100K. I also would have done so fully aware of the fact that I might be repaying $20K of my son’s debt, but I would have done so fully believing that his achievements made him very deserving of me providing that for him. Some parents buy their kids new cars… I prefer to think that education is a more valuable investment in his future.</p>

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<p>One of the big issues that is not mentioned is how this will affect EVERYONE in the family, including education of sibblings/step-sibs, retirement of parents/grandparents, creditworthiness of all co-signers, etc. Many kids & families only think about whether they can cobble together financing for THE FIRST YEAR & then figure everything will work out but it doesn’t as many of the merit awards are only for freshman year, costs & tuition rise, other expenses occur for family, etc., kiddo ends up needing more equipment, summer school, 5th year, changes majors, etc. Loans look like a good answer because so much is already invested & then more is taken because they don’t want to “waste” what was already invested, etc.</p>

<p>That is part of what happened with our ballet-major friend’s D. Also, there was no time or room in her schedule to take ANY courses outside of her major, e.g. education. It did not prepare her well at all for ANY employment.</p>

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<p>I went to a JC and transferred to the local uni(well respected, top 50 but not elite) kept my loans VERY reasonable and focused my entire time there on advancing myself professionally. I’m currently interning at an F500 firm and I expect to get an offer from it for around 60k a year. I have friends who went off to UCLA and a number of elite LACs. They have 2-10 times my debt and no job offers. What you do to advance yourself matters. Going to a college for the experience is a waste.</p>

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<p>One of H’s relatives went to med school at our flagship U, graduated with NO debt. She’s very happy it has given her a LOT more lifestyle options than her friends who went to big-name med schools & have TONS of debt. She has a job she loves & good work/life balance</p>

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<p>This might be the first step in a market cycle but it would mean that
colleges would lose pricing power or go out of business so they would
have to learn to operate more efficiently or go out of business.</p>

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<p>At the moment, the graduate degree is the new college degree and the
college degree is the new high-school diploma. See John Maudlin’s
article this weekend.</p>

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<p>What the government doesn’t have strict control on is the quality of
the degree. If you make it available to everyone, and water it down so
that everyone can get one, is it really worth it to employers?</p>

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<p>My niece is going to an Ivy for med-school and her dad is covering the
costs (I don’t know what he’s worth but he has a bunch of inherited
land and a few homes; his family lives frugally). I will have to ask
her about the experience sometime next year when she’s back. I don’t
know if the experience is worth the $$$ (she had free rides at other
med schools).</p>

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Exactly. If the government keeps throwing money, there’s no incentive to tighten the belt.</p>

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<p>And what happens to the low income students in the mean time? Oh well, so sad. You might be able to afford it ONE day if the universities decide to lower prices. Maybe.</p>

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<p>I think parents and any cosigner need to be told very, very specifically that they will be responsible for loan if for any reason, the borrower cannot make payment, But even so, parents are getting in line to borrow. People do cosign without a thought to the future. </p>

<p>I don’t know where I stand on all of this. Though I agree it has caused a lot of financial problems, it is no different than any co sign situation. Why it should be different for student loans, other than to make certain that the borrowers understand that there is no bankruptcy discharge from this loan, there isn’t much more to do. There are programs such as nursing where some families want to back their kid, there is no local inexpensive alternative with nearly the payback and that is the only way for the kid to be able to give it a go. I often say “community college,” on these posts, but the fact of the matter is that community colleges can be very limited in preparing kids for a good upward path. Some are outright terrible in terms of quality of instruction and availability of courses. Then there is the transfer to the 4 year school to deal with. There are times when the big loan is maybe worth the risk.</p>

<p>On the other hand, the fact that these loans exist is, in part, what is allowing colleges to charge what they are. If these are out of the picture, few people can afford college, and it would lead to some big changes.</p>

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<p>Right now the lower income students can’t really afford many of the loans they are taking anyway. If the government stops backing these loans that are NOT supported by any ability to repay, the U, students, families, etc. will have to re-examine options. Continuing to allow people to get loans they have no reasonable ability to repay with govt guarantees makes no sense to me.</p>

<p>I agree that it needs to be made clear to EVERY signator & co-signer of every Ed Loan that the loan is NOT dischargable even in bankruptcy of the people signing said loan. Perhaps that needs to be bolded in 24 point font right above their signature line? I have heard of med students who aren’t concerned that they are racking up debt of $200K and expect to declare bankruptcy after med school, expecting these loans to be discharged. They are bright kids & children of docs who SHOULD know better about these loans which NEVER die!</p>

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<p>If you stick to Stafford/Perkins loans, they are reasonable to repay. </p>

<p>I agree with Plus loan reform. Not with cutting gov loans all together.</p>

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<p><a href=“College Board Foundation | Home”>College Board Foundation | Home;

<p>This brief has some good information on the demographics of high student loan debt.</p>