Even very smart people are burying themselves in student debt – Part 2

My first post in this series quoted from a great article about a person going to college and how she racked up over $100,000 in student loans.

In the article, she posed a brilliant question that you really need to consider as a parent. She asked “what leads a (relatively) smart person to make almost ten years’ worth of poor financial decisions”?

I love that question. It gets to the heart of how so many parents and children are throwing caution and basic common sense out the window when it comes to paying for a college education.

There were lots of comments posted about that article too.

Here is a quote from someone who wrote one of the comments.

“I have a B.A. in Philosophy (really), an M.Ed in teaching English as a Second Language to Adults, and an M.A. in Translation — spread out over decades. I owe $86,000 in student loans.

I was the first person in my family to attend college (my father dropped out in 8th grade and my mother had a HS diploma). My parents insisted that I attend college so I could have a better life. They did not have any money to send me, so I took out loans.

As a kid I really wanted to learn a trade — carpentry or plumbing or something like that. I had NO idea what I was getting into — I really didn’t understand the concept of college — I had no points of reference as no one I’d ever known had attended. I didn’t understand the loans and I didn’t understand how to navigate any of the systems.

I loved college, though, (obviously, since I kept going back) and loved learning, and am really happy with my education. I work in human services earning a pittance (about $35k between my full-time and part-time jobs), and I love the work I do. Because I work in a non-profit, I am eligible for forgiveness of my loans after ten years of paying them, and I pay the Income Based Repayment plan — currently $123 per month. I think that’s a fair amount and I think the forgiveness plan is fair.

I guess I would like to see colleges/admissions offices do a better job of counseling people about what their student loans entail, but it’s so incomprehensible when you’re that young — the amount of debt people take on is really difficult to fathom.

It’s kind of like winning the lottery (in reverse) — we might daydream about what we’d do with a million dollars, but there’s no way to prepare for the actuality of that when your lived experience has been so different. And when you’ve just been a kid, living at home in a working class household, there’s really no way to understand what it’s going to mean to take on such a substantial amount of debt.”

You would be shocked at the thousands and thousands of true stories like this one throughout the U.S.

And whether the “forgiveness” programs actually come to fruition is still to be seen.

There are lots of strings attached to those “gifts”. And the entire student loan program is very disorganized. So she has to cross her fingers and stay very close to the whole process to have a real shot at actually meeting their criteria for a full ten years.

The Income Based Repayment Plan (IBR) can be a blessing (sort of) or a curse, or both. And it is a very new program so there are lots of open questions about how it will actually turn out for borrowers in the coming years.

I will write much more about IBR in future posts.

For now, please read the article she wrote because there are so many great lessons in there for all of us.


Student debt can drag your entire family down

One of the ironies of student debt is it was designed to help more people get a college education.

But in the process, parents and students have almost turned off their brains when it comes to learning (getting an education) about the risks and dangers that student loans can bring into their life.

If you are truly interested in getting an education, and you are considering using student loans, it would be wise to educate yourself first about the details and ramifications of student loans.

Janet Lorin posted a fascinating article at Bloomberg BusinessWeek’s web site titled “Indentured students rise as loans corrode college ticket”. I’ll give you the link to that article at the end of this blog post.

Here’s a story about one family in that article.

“Geraldine Damiani Brezler took out a $5,000 student loan in the late 1960s to study at the State University of New York. She became a nurse, got married, bought a house and repaid the debt in less than three years.

Today, her son, David, 38, owes about $85,000 in loans for a master’s degree in education at New York University. He can’t find full-time work, lives with his parents in White Plains, New York, and has deferred paying his debt for three years.

The financial-aid odyssey of two generations of Brezlers tracks the history of U.S. student loans, which, like the home mortgage, helped define the American dream. In the early years, the loan program let ambitious teens take on a small debt that could pay off with a lifetime of higher earnings. Now, the $1 trillion in outstanding student debt has become a drag on the economic recovery, a flashpoint in the presidential election and a threat to the egalitarian ideals of U.S. higher education.

“It’s like waking up to a snarling wolf every morning,”said David Brezler, who spends his days searching job listings, following up by e-mail and phone and taking on short-term consulting jobs. “The idea of buying a house — it’s completely inconceivable.”

The article goes on to ask an important question and to get some feedback from someone involved in student loans almost 30 years ago.

“How did a once-modest federal program spiral out of control, weighing down low- and middle-income families like the Brezlers that it was designed to help?

The answer echoes both the health-care and mortgage crises. As college costs have soared faster than the rate of inflation over the past four decades — reaching $60,000 a year at the most expensive private schools — Republicans and Democrats alike postponed a reckoning. They encouraged borrowing and ignored surging tuition, leaving loans to balloon to the size of mortgages, shocking even the system’s own architects.

“No one ever conceived this was a way to create a debtor class of former students, the indentured student,” said Tom Wolanin, who worked on federal higher education policy for 30 years and was a deputy assistant education secretary in the Clinton administration.

Politicians of all stripes ignored repeated warnings that the day would come when debt would become unsustainable.

“The path of least resistance was to have the student borrow more,” Wolanin said.“

Notice how a big part of this problem was fueled by politicians who “encouraged borrowing and ignored surging tuition”.

There is an important tip for you in that statement.

Your path to a valuable education and true freedom in life for your children is to discourage them from borrowing and pay close attention to the cost of the college your children attend.

Planning for your children’s college starts with doing your homework about the cost of different schools and the downsides of borrowing student loans.

Then have your children do their homework as well. They could start that work during high school so they become an expert on how college works.

And they can learn how money works too… and how debt is not the free ride so many politicians make it out to be.

Here’s the Article

Check out Janet Lorin’s article at Bloomberg Businessweek’s web site titled “Indentured students rise as loans corrode college ticket”.

It is a fantastic article.

Student loans make college tuition even more expensive

One of the discussions among those advocating for student loans is that the government needs to make low interest student loans available to “help students and their families better afford tuition costs.”

The problem is that student loans don’t make tuition costs more affordable.

In fact, it’s probably more accurate to say student loans increase the cost of tuition. It puts interest expense over a long period of time on top of the tuition costs.

Debt makes college tuition even more expensive than it already is.

And there are many voices out there that would say that the huge increase in tuition costs over the last ten years is at least partly a result of the government making student loans so easy to get.

A Student Loan is Not an “Award”

Here is a quote from an article by Janet Lorin at the San Francisco Chronicle on May 6, 2012

When Susan Romano first read her son Zach’s financial aid letter from Drexel University, a private college in Philadelphia, her eyes immediately jumped to the line highlighted in yellow: “$13,442 expected payment” for the first year at the $63,000-a-year school.

“At first, I thought it was great,” says Romano, an insurance claims representative from Huntingdon, Pa. “The more I read it over and over, the worse it got.”

It turned out the college’s “offered financial aid” included $42,000 in loans to be taken out by the family.

“A loan to me is not financial aid,” says Romano. “It is money I have to pay.”

Colleges try to make it sound so nice to be “awarded” a loan. Reality check – it’s just marketing lingo.

Taking on student debt is not an award.

If you can’t afford tuition, you can’t afford tuition.

Taking on debt to make the tuition payment doesn’t make it affordable.

A grant, or some other form of benefit that actually reduces the amount of tuition you have to pay, would make it more affordable. Providing you a student loan doesn’t.

Making tuition more affordable for you and your children is all about saving money, searching out grants and scholarships, choosing schools with lower tuition and a host of related activities designed to allow you to pay for school—not borrow and mortgage your future with student debt.