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The Student Loan Debt Blog: A Blog About Student Loan Debt and Student Loan Consolidation

Student Loan Debt

A Blog About Student Loan Debt & Federal Student Loan Consolidation

Thursday, October 16, 2008

EDITORIAL: Just Because College Is Expensive, It Doesn’t Mean That You Shouldn’t Have To Pay For It.

student loan debtAs I was listening to The Rush Limbaugh Show yesterday, I heard a sound byte of Senator Obama and a young college student who was a little disgruntled about the cost of her education. Obama agreed that what she was experiencing wasn’t fair, and of course, went on to give his typical encouragement blurb about change, hope, or what have you. Limbaugh came back to rant about how Obama doesn’t think that people should have to pay for higher education because he is a socialist. Thoughts of my own mountain of student loan debt soon drowned out the radio, and I found myself sincerely contemplating the issue.

Was Obama right? How much should I have to pay for higher education?

Just to be sure Rush’s argument wasn’t unfairly slanted, I checked Obama’s position on his website, www.barackobama.com. His official stance on higher education costs read as follows:

...Obama and Biden will make college affordable for all Americans by creating a new American Opportunity Tax Credit. This universal and fully refundable credit will ensure that the first $4,000 of a college education is completely free for most Americans, and will cover two-thirds the cost of tuition at the average public college or university and make community college tuition completely free for most students. Recipients of the credit will be required to conduct 100 hours of community service...

Low to middle income families would surely welcome such policies, and for good reason. According to the U.S. Census bureau, the cost of postsecondary education has more than doubled since 1990. Faced with today’s gloomy economic climate and grim future, parents and students are crying for relief. Obama promises to educate high school graduates for 1/3 of the cost of tuition.

But is that his job?

While the tax credit sounds great to those who qualify for it, it should worry Americans who do not, because they will be the ones paying the bill. With Obama appeasing the American middle class by promising to increase the tax burdens only on Americans making more than $250,000 a year, this wealth redistribution system essentially boils down to the “rich” and the government taking care of the “poor”.

Is that really fair?

Others argue that the cost of a student’s college education should only be negotiated by two parties - the college and the student. This could be viewed as a free-market approach to education. While some insist that private institutions not backed by the government only serve the rich, the opposite is true. Harvard University has plans to increase student aid this year in a grand effort to subsidize tuition so that more deserving students can afford to attend. This is a good example of a private institution compromising with students to accommodate the changing economic climate.

Whether you like Obama’s plan or not, the truth is that the U.S. government already offers generous student loan programs that empower millions of Americans to pursue higher education while contributing to the American economy. While we hate to pay back the student loans that seem to multiply exponentially as soon as you sign on the dotted line, we enjoy the professional positions that we are able to pursue as a result of our advanced education. Furthermore, the interest goes to help fund the government that provided the initial loan. This allows students to pay their own way through college without having to offer collateral or pay out-of-pocket. Is that not more than fair?

Just because college is expensive, it doesn’t mean that you shouldn’t have to pay for it.

My parents knew that they would not be able to afford to pay all of our college tuition, so they told us to study hard and apply for as many scholarships as we could. They took out loans to cover some of the difference, and so did we. That’s life. Otherwise, we would have either had to put off going to college until we could acquire the necessary savings and credit or pursue other options. This approach to funding higher education wasn’t pleasant, but it was most certainly fair. It’s fair because the return on the investment has the potential to be exponentially higher than the investment itself. If I owe $100,000 in student loans but I make $150,000 per year, the investment pays off substantially. Unfortunately, since great jobs are not guaranteed, college education is a risky investment. That doesn’t mean, however, that if you come up short that it wasn’t fair because the cost of the education was too high. You might then be able to requisition the government to bail you out because you lost money pursuing gain that did not pan out for you.

Wow; that sounds eerily familiar…

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Saturday, September 27, 2008

Losing Track Of Student Loans Can Wreak Havoc On Your Personal Finances

While having a big family is a wonderful blessing in and of itself, it’s especially rewarding during tax season. Don’t get me wrong; I value my family infinitely more than a tax refund, but it feels good to know that my commitment to my marriage and children is recognized by our government when tax time rolls around. We had twins last year, so when my husband and I realized that we would get a Child Tax Credit for both of them, we thought that was pretty nice. After deductions, we expected a return in the thousands, so we were happy campers.

During that same time, however, we were dealing with a frustrating issue that did not put smiles on our faces at all. Somehow, when I consolidated my federal student loans, one of them was not included. I didn’t understand how it could have happened, considering how informed the consolidation company was. Loan consolidators do all of the hard work for you - they call you out of the blue, offering to make your life easier by combining your student loans with a great interest rate and anything else you need, including forbearances. As they are explaining everything to you at the speed of light, they list all of your outstanding loans and help you to understand why making one easy monthly payment would ease your anxieties about student loan debt. They’re right; it does. So, I agreed with them and consolidated my loans. They reviewed the information with me again, reading back the information on each smaller loan that would be merged together into the big loan. So, I thought everything was taken care of.

And then we found the one that got away.

Actually, the one that got away found us; once the creditor discovered I had moved and gotten married, they politely called to let me know that I owed them money for a small student loan. It took a while to figure out what happened, but when we did, my heart sank. I was so young and I took out so many small loans while I was in school that I hadn’t been keeping track of them properly. So, when the consolidators did not have their facts and figures right, I should have been able to correct them, but I wasn‘t. I ended up with a defaulted loan because it went unpaid and unnoticed for quite some time. As many young Americans know, having a student loan in default is guaranteed to bring a lot of unwanted phone calls, anxiety, and grief that we did not want. One artist was so encumbered by Sallie Mae that he wrote a song about it:



So, we did everything we had to do to bring that loan back to current status, although it didn't happen until around the time we filed our taxes for the year. Thinking that everything was settled, we filed and waited, only to learn that the creditor had not reported the updated status of the loan, so our entire federal refund would be garnished to settle the debt.

Needless to say, that knocked the wind out of my sail.

Lots of people depend on their federal tax returns each year to cover large expenses or to revive their personal finances. However, outstanding student loans, if they are not current or at least in forbearance, can cause your federal income tax refund to be garnished. Although what we lost was actually enough to pay off the debt and would release us from it, we couldn‘t help but feel blindsided. Our tax preparer told us that we could have appealed the situation, considering that the return was garnished unnecessarily. We decided to just let it go. Although we mourned the loss of our beloved tax return, debt freedom, much like family, is simply too great a commitment to take lightly.

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Thursday, August 28, 2008

StudentLoanJustice.org

Was reading the New York Times on Sunday and came across an article about the StudentLoanJustice.org website. It's a web space you must visit at least once if you or a member of your family has student loans. Site is chock full of content that's both shocking and engaging. This site is not just a place to read up on the injustice that exists in the American student loan industry, it's also the official website of the StudentLoanJustice.org Political Action Committee (PAC).

Here's a clip from the site's "about" page:

"StudentLoanJustice.Org is a grassroots organization started in March, 2005. The purpose of StudentLoanJustice.Org is to give borrowers who's lives have been adversely affected by the predatory, uncompetitive laws that have been passed by Congress since the 1990's a place to tell their stories, to conduct research about higher education legislation, higher education lenders, the effect these have had on the lives of citizens, and to cause a solution to be legislated. Without advertising, revenue, or staff, StudentLoanJustice.Org has grown to thousands of members across the country comprising every state in the Union..."

When I defaulted on my student loans, it was because I didn't want to make the payments. I was trying to get ahead in life. I didn't think the government could or would take every penny I had in my bank account. But that's exactly what happened; I learned a hard lesson.

The U.S. economy is languishing right now, and I'm certain that a consequence of the economic downturn will be lots of Americans defaulting on their student loans in the months ahead. Many will have legitimate reasons for defaulting, like an unexpected illness or unemployment. And here is a very ugly truth I learn at the StudentLoanJustice.Org site: Sallie Mae CEO Albert Lord made more than $230 million in compensation since the late 90's, and a significant portion of that money came from the fees associated with borrowers defaulting on their student loans. Lord got so fat from student loans that he put in a bid to purchase the Washington Nationals baseball team.

Now, if a CEO grows a company's profits during his tenure at the top then, yes, he should get a generous bonus. If a company goes from grossing $3 billion per year to grossing $35 billion, then a bonus of $500 million is OK with me.

But banks that are in the business of making student loans are not like banks that make business loans, originate mortgages or issue credit cards.

If a borrower suddenly finds himself in financial dire straits and can't make payments on his/her student loans, that person can't get the debt discharged via bankruptcy, thanks to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 [1][2][3]. Default on your loans, and the fees will pile up (don't forget about the interest.) Those fees go to student loan specialists like Sallie Mae, and make CEO's like Mr. Lord very rich. To me, it's obscene that a CEO can get rich in this way.

There are some interesting articles and OpEd's here. There's a group in Facebook here. You can share your student loan horror story here.

Many Americans have shared their student loan horror story with StudentLoanJustice.org here. It's truly amazing how many defaulted due to hardship only to find that their student loan debt has doubled, tripled and even quadrupled due to interest and fees. No, it's not amazing, it's disgusting.

In a recent blog entry, I was second guessing my decision to use a significant chunk of my savings to payoff my student loans. After reading unnumbered horror stories at the StudentLoanJustice.org site, all my doubts have disappeared. Yep.

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Wednesday, August 27, 2008

Is Leasing A City's Waste Treatment Plant A Good Way to Raise Cash for Students?

Mayor Don Plusquellic of Akron, Ohio has an ambitious plan to help graduates of Akron's public high schools pay for college and trade school. The plan: lease the city's waste treatment facility to a private contractor and generate as much as $200 million.

Yeah, I know. You're thinking that maybe this story is a hoax, that it belongs in the Onion. But it's not. Click here to read the AP story.

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Thursday, July 24, 2008

Was Paying Off My Student Loan Debt A Bad Idea?

Back in January 2008, I decided to payoff my student loan balance and be done with it. At the time, I wasn't too worried about draining my savings account, since business was good, and I felt that my business was more or less recession proof. I was paying 8% interest, and there was no way for me to consolidate to get a lower interest rate, because I had already consolidated with William D. Ford. (FYI: you can only consolidate student loan debt once, unless you go back to school and get more student loans.)

Here's what prompted me to payoff my student loan debt:


federal student loan statement


The above is a clip from the 2007 tax statement sent to me by the folks at William D. Ford. As you can see, since I consolidated, the amount I paid toward the principal was about the same as the amount I paid in interest. That just boiled my blood, and made me a little bit sick to my stomach. I'd been paying interest my whole life, and I was tired of it. This student loan debt was the only debt on which I was paying interest. I had an opportunity to rid my life of interest payments, so I took it.

Now, I'm beginning to wonder if paying off my student loan debt was a good idea. Yes, I know, you're asking yourself, "how the heck can paying off a huge debt be a bad idea?" It can be, if, like me, you are now working with a depleted savings account. I have learned -- the hard way -- that my business is not recession proof. In fact, I have learned that it is in fact very sensitive to economic conditions. This is the first time the economy has taken a hard spill since I began expanding my business back in 2003.

I had paid off my car note a few months previous to paying off William D. Ford, which did not help at all. At the time, I was very confident in my ability to maintain a steady and strong income. I got cocky, and now I'm paying the price.

Here's are the other directions I considered:

  • Keep paying ~$110 per month with 8% interest. Balance would be reduced to $0 in about 500 years.

  • Increase my monthly payment to reduce the time it will take to bring the balance to $0, and reduce the total amount I would have to repay. Of course, with this option, I still would have been burdened with an 8% interest rate.

  • Transfer the debt to a 0% credit card. A decent option, but with 2 significant negatives 1) Once the interest-free period ends, there is no way to guarantee that I'd be able to find another favorable 0% credit card deal to which I could transfer my balance. 2) Balance transfer fees. 18 months ago, finding a 0% credit card that doesn't charge a balance transfer fee was easy. With the onset of the economic slowdown and the global credit crunch, feeless deals have all but disappeared.

So, yeah, I'm hurtin' right now, but I'm still very glad that the debt is gone. I cannot put into words how satisfying it was to call William D. Ford to check my balance, and hear this.

So, how am I going to manage?

First, I'm going to petition the family court to have my child support payments reduced. My monthly payment is nearly $700 for one child, which is way too high considering my current income. The mother of my child and I recently canceled plans to send our daughter to an expensive, private school. The fees were just too high (~$8,500 per year.) That's too much for a child going into Kindergarten. Even if my current income was the same as it was one year ago, when I was making almost as much as a U.S. Senator, I'm 90% certain that I would have decided against sending her to that expensive school. Fact is, she's doing great in the subsidized private school she's attending now. She also goes to Kumon twice per week, which I can recommend to any parent who can afford the $200 per month (she is way ahead of her peers in math and reading, thanks in no small part to Kumon.)

Second, I'm going to cash out my whole life insurance policy and get a term life policy. Suze Orman has finally convinced me that whole life insurance is not the best way to go.

Third, I'm going to cutback on my food shopping. Thankfully, I stocked up on meat during the good times. I now have a deep freezer full of high quality meat that could last a year or so -- literally!
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If you can payoff your student loans, I say do it. Just don't payoff your car note within the same time frame! Comments welcome.

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Monday, July 30, 2007

Can You Save Money by Consolidating with Sallie Mae?

The folks at Sallie Mae have put together a handy and user-friendly tool whereby you can quickly and easily figure out if consolidating your student loans with Sallie Mae® can lower your monthly loan payments. After answering 5 questions, the animated tool will show you how much you can save each month, if at all, by consolidating with Sallie Mae.

Click here to jump to the new Sallie Mae tool.

Caveat: Consolidation can be advantageous if, for example, you have many loans from different agencies. However, it's important to remember that a lower monthly payment can also extend the life of your student loan indebtedness by a significant amount. A longer loan term invariably translates to paying more in interest charges in the long run. Keep that in mind when making your decision.

NB: Sallie Mae used to be a government-subsidized entity, but the company completed a conversion to being a 100% private organization back in 2004. Sallie Mae, therefore, no longer has an official relationship with the federal government.

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