Paying off Student Loans in Retirement.

I'm 70, long-retired and this is the scariest retirement chart I've ever seen. It's the number of Americans who have had at least one Social Security payment docked to pay student loans.

Apparently, this happened to only SIX individuals in 2000. Last year? 115,000!

graph of outstanding student loans - Google Search

Johann

 

Personally, I believe this is a real bubble. And I also believe the government isn't going to help people.

Colleges and universities are largely non-competitive businesses. Almost a cartel. Their costs have risen far faster than inflation. And students have nowhere else to turn.

Students are at two other disadvantages. First, they're borrowing against a future that--they hope--will be more lucrative, making the payoff (and the ROI) worth it. But with such high costs--and the impacts of Diplomaism--the ROI is getting harder to achieve. In short, they're paying more and more for degrees that will pay off less and less.

Second, they simply don't know what the right price is. What is a car worth? A house? How can you possibly accurately price these things? You can't, so you compare the costs to other examples. My house cost what it did because all the other ones cost that. But the cost of my house is triple that of a similar one in another town. Which is right and which is inflated/deflated? You don't know. You just pay it. Well, same with a college education. You borrow the money and pay it.

I'm about fed up with all of this. I'm tempted to start an accredited school that charges about a third of the prevailing rate. Well, something like that.

 

This is a disturbing trend. A sizeable group are older adults who have returned to school because they have been unable to secure employment, and live off of their student loans. Sad, but true.

 

You know, if someone did start such a school, I think it would take off like gangbusters...and it would still be highly profitable, too. All a school would have to do is get the word out that they are offering the same product (accredited courses and degrees) for much, much less than the competition. Instead of trying to earn a lot by gouging its students, such a school could earn more by expanding its base (more students). Heck, everyone on this board knows how little adjuncts make. It's not like there's a major expense involved in delivering higher education.

 

If the loans are federal loans and not in default, one could use the Income Based Repayment Plan (IBR). It is possible to have an IBR payment of 0. After 20 years, the balance is forgiven (though taxable income).

 

Like most bubbles they get punctured one way or another.

 

Right. You might get forgiveness - of what's left after 20 years of your Federal loan - possibly. And yes - you can have an IBR payment of zero. But I don't think anyone wants to be that poor. One poster said on another forum (today) that "to get out of your student loans, you have to die." In the US, I think that's pretty close to the truth. Here's how I answered him, from a Canadian perspective:

Yes, - it appears you do. Unless you pay them off beforehand -- and that (I think) is the way it's supposed to work. The tragedy is: it doesn't always work. First six, now 115,000 having their Social Security docked. What next - millions?

BTW - Canada's experience re: discharge of student loans in bankruptcy - to the best of my knowledge:

At first, they were (usually) completely dischargeable in bankruptcy. Students caught on to that. At one point in the 1980s, one in eight Canadian bankrupt individuals was a fairly recent former student, usually with student loan liabilities. That was tightened up, so that the loans were not dischargeable in bankruptcy unless they were 10 years old or more. More recently, that complete discharge has gone away. Now a bankruptcy judge makes individual decisions on what portion (if any) is dischargeable and (I believe) what payment schedule will apply to the remainder.

The whole situation reminds me of something I used to see during my working years as a bill collector:

"Please pay your bills before you die. We don't want to chase all over hell after you!" :sad:

Canada has problems with student debt, but certainly not to the extent the US has. Here's a chart, showing (Federal) Canada Student Loans outstanding as slightly under 15 billion. There's maybe another 5 billion in provincial/private loans that are under-reported.

So, 20 billion vs 1.1 trillion in the U.S. That's hardly comparable.... yet. Not even with a 10-to-1 population ratio. Well, at least they won't have to dock my two Government pensions for student loans. Or my sons' private pensions, when they get there. My grandkids -- I'm hoping not. We're all doing the best we can for them.

How Big is Canada's Student Debt Today? | Student Finance 101

Johann

 

No, it's incorrect. In the US, student loan obligations are not necessarily terminated by death.

If parents (or other friends or relatives) co-sign a private student loan, and the student dies, then the lenders can continue to seek repayment from the co-signers. See this Wall Street Journal news story, "When Student Loans Live On After Death":

It's tragic, but true.

 

One source of anxiety in our household has been the recent jump in interest from 3.4% doubled to 6.8% That's more than my mortgage rate.

 

As I understand it, Lance, that may be simply because the Government did not get around to the necessary (and readily-available) procedure to forestall it, before the upcoming July 4th holiday. I've read elsewhere that it is an "easy fix" and will be dealt with soon after. I certainly hope that was accurate.

Johann

 

A few states are already working on cheap degrees. Texas started the $10,000 degree trend. It's really the only good idea I can think of that has come from Rick Perry. The new competency-based programs should be cheap like WGU's. NAU is $5,000 per year, but you can complete a lot more credits in a year than in a traditional program. They also accept 60-something credits in CBEs. SNHU's College for America charges $2,500 per year. Of course, a lot of people on this forum and the other forum have saved a lot of money by attending the Big 3. People should definitely use community colleges more often too.

 

Right, the obligations aren't. But if I die, I do get out of my student loans. And everything else. They can no longer come after me. So, in a way, the poster is still right. Co-signers, of course, don't get out of what they signed until they die. :sad:

Yes - I know - semantics. Silly argument by me. It all boils down to the absolute accuracy of your final statement:

"It's tragic, but true."

Johann

 

Johann, procrastination is our government's strong suit.

 

My (Canadian) government's, too. :sad:

Johann

 

Great post. It contains several good, common-sense answers to help with this problem. Too bad there can't be a degree program in common sense. It's a much-needed discipline. :smile:

Johann

 

I used an online calculator to figure that the federal student loan rate is fixed at 6.8% with a repayment plan of 10 years. So, if a student borrows only $40k for an undergrad degree ($10k per year) they are looking at about $460 per month. Now, when I just asked my 18 year old if he thought that was a large payment, he said "no, because you'd be making more than enough to pay it back. I make more than that now" (this is coming from my son -the lifeguard- making 8 bucks an hour) Now, seriously, we TALK about MONEY a LOT in our family. I mean a lot. And I felt like my head was going to pop off right there.
Default rate is at an all time high, and I just can't wrap my brain around it. I don't think people lack information, I just think they lack understanding.

EDIT: and let me add, his girlfriend just enrolled at a local private college here called Queens University for nursing (don't get me started considering we have the top community college in the country that also offers nursing for pennies, but anyway) but they accept 38 CLEP / AP credits, so when I told her this, she shrugged and said "ehhh. I don't know." Ok, that was $30,000 worth of advice. This school is sitting around $8xxish a credit. I have no words. She's borrowing it all. Let's hope they don't get married.

 

Unfortunately, it looks like I was dead wrong about the "easy fix." A deadline did pass -- but it passed because parties could not agree on a solution. Apparently, the 3.4 rate was fixed for a year, at which time an agreement for the future was supposed to be hammered out. It wasn't. Here's one article, of many:

Stafford Loans: Congress Lets Interest Rates Double to Unacceptable 6.8%

I apologize for my over-optimism and I'm very sorry about the pain this is bound to cause Americans with student loans. The 3.4 rate seems to have been a temporary "vote-getter" in the last election.

Johann

 

I'm amazed. Your 18-year-old son said THAT? Indeed, he doesn't seem to understand the situation. Even though you talk freely and often about money in your home, you've written a book on Homeschooling for College Credit and...aren't your children all home schooled? :question: :question: :question:

Johann