Be careful of taking out too many loans to pay for education

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wow. You didn't read my post that you are replying to. I get that you posted it as a cautionary tale, but these are just the kind of justifications EVERYONE uses about taking out loans. My post suggested not taking out any loans for undergrad work.

 

I absolutely read your post, and I thought it was a little insensitive to say there are no excuses to take out undergrad loans. I countered by saying sometimes you need to. And I rambled a little bit about how much it sucks to have loan debt. My error in not making two posts. Apologies.

 

I am a financial aid administrator at a small, expensive grad school (though I've previously worked at undergrad, vocational, private and public schools).

It is my opinion that student loans are a wonderful vehicle to help students reach their educational goals, but I do everything I can to make sure that the students do so with their eyes wide open. I currently work with grad students (mostly mid-career adults), most of whom will get public sector jobs. They aren't going to be rich. Still, some insist on taking far more loan than I would ever recommend. I can't really stop them, but I certainly try to make them understand what they are getting into.

I obviously don't know the background on the woman in the Wall Street Journal article, but you don't get into her position by making smart decisions. She clearly over-borrowed, and then she clearly did not take advantage of opportunities that would have been offered to her to keep her from accumulating those sorts of fees. That just doesn't happen without willful avoidance on the part of the borrower, barring some sort of disastrous event in the borrower's life - and she would have mentioned it if that were the case.

Bottom line - pay cash if you can. Borrow if you must, but borrow with the full knowledge of what you will owe. If you don't feel your school and/or lender is offering enough info, ask. And by all means, don't act like a student loan is a substitute for an income. While you are a student, live like a student.

 

We can agree to disagree because clearly we define "need" differently.

Insensitive? OMG. Wow. We have to be sensitive to someone's "need" to take out a student loan? Really? Is that even a real thing? LOL. Should I feel sensitive to someone's $3000/month mortgage too? LOL

I'll be sensitive toward the guy working 2 jobs so he can pay cash for his community college classes- that he's taking two at a time with unwavering commitment and determination- sure he passes every class and keepin' on keepin' on.

MANY people don't need to live very far below their means to pay cash for school, certainly not as extremely as I just described, they just don't want to.

How many of my students take out student loans? ALL of them! If not 100%, then darn near 99%. How much? The full amount baby!!! But, hey, that's cool man- they can use the cash back to pay the cell phone bill and a latte.

 

Wiping out teachers student loan debt

Here is an article from yesterday's Los Angeles Times re Student Loan Debt:
http://www.latimes.com/business/la-fi-perfin14-2010feb14,0,5507187.column

 

I agree that one should take responsibility for one's own decisions in life. I cannot, however, condone the behavior of the student loan industry as a whole. If you would like to learn a little more about how the legislation reads and where the mistakes were made, do a little research on Harrison Wadsworth III, John Boehner, Howard Mckeon, Mike Enzi, and especially Albert Lord and Thomas Fitzpatrick. There are disturbing things that have occurred, and too little attention paid to the plight of those affected. Granted, there are those that simply took the loans out without any real thought and now are trying to weasel out of paying them. But there are also those that took the loans in an honest attempt to better themselves (be it because of naivete or the "oversold" nature of education) and due to unforeseeable circumstances were not able to capitalize on their education. Once one exhausts the deferment/forebearment options (and yes they are terminal, not indefinite), if the income situation is still not such to allow repayment on the terms set by the lender (which has no regulation as to how they assess the repayment terms), then the loan goes into default. Once defaulted, a person can hold almost no professional license in the U.S. (i.e. teaching, medical, plumbing, electrical, contracting, auto dealer), and is therefore relegated to a position that further prohibits their ability to repay the loans. The treasury then has limitless power to garnish wages above the poverty line, garnish social security/va benefits, seize tax returns, and generally take every penny an individual makes over the poverty line. As stated by CalDog, I don't want to sound melodramatic, but it essentially creates a class of servants indentured to Sallie Mae and the United States government.

These loans are too accessible (due largely to Sallie Mae's insistence that they be so-they are after all non-dischargeable and so the loan servicer is guaranteed repayment with interest), enjoy far too much freedom from regulation, and are entirely too protected from standard consumer rights.

I am still attempting to completely evolve my stance in this issue, but I do know that one of the hinderances the cause is experiencing is the absence of an intelligent, coherent voice in congress. I don't know how to fix all of the problems, but I do know that the system is broken.

Cookderosa, after reading your posts on various threads, I have too much respect for you to say that I can refute your arguments. My kids will not take out student loans. Period. We/they will pay cash. Period. And I, too, now lead a cash lifestyle. But I say to give the guy who had a spot of hard luck a fighting chance to pay back his debt to society. Don't hold him down so that you can suck his income away from him for life.

 

Obviously there are risks, to both borrower and lender, when money is loaned. A “good” loan is one where both borrower and lender face significant risks, yet both can agree that the risks are reasonable. So it’s a joint decision, and both borrower and lender share the risks and responsibility.

The problem with today’s student loans are that the risks are unbalanced: too much risk is assumed by the borrower, and not enough risk is assumed by the lender. Obviously, any lender is going to think very carefully about a loan, if the possibility of default is real. But what if there is no legal possibility of default?

If there is no risk of default, then lenders can be careless, instead of careful. Irresponsible “bad” loans are the result.

 

Is there a simple, general rule of thumb for a maximum loan debt to (potential) income ratio?

Like, with homebuying, "experts" used to say take out a mortgage equal to no more than three times your annual income.

 

Excelllent comments and I agree. I had forgotten about how Sallie Mae can take your state license if you are in default- removing your source of income and ability to pay, isn't that counterintuitive? Someone didn't read the fine print when that "educational opportunity" passed legislation. Even in bankruptcy, student loans are not dischargeable.

Of course there are a dozen other problems with default, starting with simply registering for the next semester- obtaining a transcript - conferral of your degree- so it's not like you can even continue on your educational journey.

Maybe if someone feels like they must borrow money for school, they should use Visa. <not kidding>

 

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Not for student loans. Student loans are based on ZERO income. They are instead based on the cost of tuition and fees that your school supplies, and federal caps on borrowing. The more your school costs, the more you can borrow. Yipee!

There are only very narrow instances that would deny you a student loan- I believe one is a drug conviction, and another being default...but it's not based on debt:income.

Deciding on a personal debt:income ratio is a matter of philosophy. Lenders are not the best source of guidance here, they are clearly biased toward you borrowing as much as is legally possible.

 

But buying a home isn't designed to increase income; earning a degree usually is. As I pointed out in an earlier post, one of the main tenets of professional development in the U.S. is that it is largely undertaken by the individual employee. He/she takes the risk, but also enjoys a very high level of choice, flexibility, etc. You can fly to the moon. Or you can sink into a morass of debt and low wages.

You'll have to take a look at several factors, including other expenses and debts, what you think your income will be after graduating, and the value you place on earning the degree despite its costs. That's awfully hard to put into a one-size-fits-all formula or ratio.

 

This is very true... And once you pay off your default (unless you don't file taxes, for some reason, or always owe when you file taxes, you *will* pay towards the loan with every tax refund you would get until it's paid off,) you can actually get student loans again. Kinda kooky.

 

Ka-Boom!

http://finance.yahoo.com/college-education/article/108846/the-555000-student-loan-burden?mod=edu-continuing_education

 

Rich, that's the same article I posted to start this thread. Did you mean to post a different article?

 

Exactly. Although I believe that someone did read the fine print, and this system is the way it is not by an error of omission, but by design. Sigh....That's my hippy tirade for the day. I'll check the thread again tomorrow. On a side note, I have all my transcripts in to TESC but my AP Calculus from 2000; that one is proving elusive. But I will prevail.

 

Rich,

Dr. Bisutti is obviously far from the “sharpest knife in the drawer” regarding her finances (and likely other areas as well), but the article is reminiscent of the federal, state and municipal governments and their rising public /national debt (deficit) structure. And of course Dr. Bisutti doesn’t have the option of financing her entire deficit by merely printing more currency (e.g., U.S. central bank spinning up the presses to monetize the debt). In reality, who’s really the bigger fool/s?

http://www.usdebtclock.org/