Scary article about student loan debt

[crisi]

A friend of mine just finished his MBA, at 46. Then, to get the promotion he wanted, he moved to one of the highest cost of living areas in the country. Now he has twenty years in his career, almost $100k in debt, and kids hitting high school...which means their college bills are around the corner. And has a new $400k mortgage.

Different choices....when he applied to grad school, he wanted me to apply as well. I laughed and said I'm thinking retirement, not student loans and career advancement. He thinks he's well situations now to climb the corporate ladder, and I hope he does. But it's a big risk.

 

[Praying Colonel]

Some here are saying that younger adults are too naive to take out such loans. What other solution is there though? They can go to community college for a while and stay in state but chances are that they will still have to borrow some money.

Yes, but they borrow much less than going out-of-state or an expensive private school and funding it 100% with loans, as many do.

There's always joining the military. You can get tuition reimbursement to take classes while in the military, plus you can earn money through the post-9/11 GI Bill. If you've already graduated and have student loans, services offer loan repayment for some enlistments.

If the military's not your thing, many employers offer tuition reimbursement, loan repayment or direct funding for degree programs. For example, DW had 100% of her Masters Degree paid by her employer in exchange for a 3-year payback on work with that employer. And UPS here in Louisville offers a Metropolitan College Program where part-time employees can have their education paid 100% if they attend Jefferson Community College, Kentucky Technical College or the University of Louisville.

Those other ways of funding college may not be as fun and may require some sacrifice, but IMHO it beats coming out with a degree and heavy 5 or 6-figure debt to go along with it. That's not a walk in the park, either.

 

[Woth2982]

May I ask how long was the term of your loans? Was it 15 years or more? Just curious because I graduated a long time ago (late 80's) and had a small amount of loan debt but my term was 10 years.

I know it can vary with private loans and I am guessing that is where some longer terms are coming into play potentially.

My Loan was I believe a 10 year as my payment was $1100 a month. I went to grad school after college so the interest built up after at a rate that I was not anticipating.

 

[Woth2982]

It's not really a Ponzi scheme. It is a loan and you do have to pay it back with interest. The terms were in your original documents when you initiated the loan. Personally, I would be very unhappy to have a 60K loan (or for my kids/grandkids) to take such a loan. I would be looking for community college before I borrowed 60K.

Believe me, if I could go back and do it over again, i would have gone to community college for 2 years then to a state school for both undergrad and grad school. I went to a private undergrad and state grad school and the state school I feel gave me a better education than the private one. But when I was 18 I was never about to admit my parents were right. Now a days though, at least in my state, four years at a state college will cost as much as I paid at my private college 12 years ago.

 

[Woth2982]

How in the world can you call Sallie Mae a ponzu scheme? no one forced you to take out the loans, nor were the terms of the loan hidden from you. Perhaps you should blame yourself for not clearly reading all the documents that YOU signed!

Unless you have personally delt with the nightmare that is Sallie Mae, you can't understand. I paid faithfully my $1100 a month to them, and they would never apply the payments correctly. They send a bill. I pay the amount due plus a little more to attempt to get a head. 13 days later I get a call saying my account is past due, meanwhile I have the cancelled check saying it isn't. Now they charge me a late fee and raise my interest rate. This happened EVERY SINGLE MONTH for 6 months. The calls finally stopped when that life insurance policy from my grandfather paid them off. And THAT is why I call this a ponzi scheme.

I did read the terms and conditions, based on how I read them I did not believe my interest would be 40K! But what does any 18 year old know about anything? How many 18 year olds TRULY listen to everything their parents say? I can't name many. At 18 you think you know everything.

 

[deegack]

Unless you have personally delt with the nightmare that is Sallie Mae, you can't understand. I paid faithfully my $1100 a month to them, and they would never apply the payments correctly. They send a bill. I pay the amount due plus a little more to attempt to get a head. 13 days later I get a call saying my account is past due, meanwhile I have the cancelled check saying it isn't. Now they charge me a late fee and raise my interest rate. This happened EVERY SINGLE MONTH for 6 months. The calls finally stopped when that life insurance policy from my grandfather paid them off. And THAT is why I call this a ponzi scheme.

I did read the terms and conditions, based on how I read them I did not believe my interest would be 40K! But what does any 18 year old know about anything? How many 18 year olds TRULY listen to everything their parents say? I can't name many. At 18 you think you know everything.

Tell me about it. They are the absolute worst. I tried everything to get them to get it right. Send separate checks. Send separate checks in separate envelopes. You name it I did it.

 

[jlw29]

Our daughter graduated in May with no student loan debt but she begins medical school next month. There's enough left in her college fund to cover one year. The rest is going to be covered by student loans and whatever help we can throw her way. The amount of her debt load would buy a small house but her first year in practice should net close to that amount. I don't know how her classmates, who are entering the field with undergraduate student loan debt, are going to be able to pay it off. Everyone thinks that doctors are "so rich" but no one considers how they have to delay earning a real salary for 6-8 years after that undergraduate degree and then have to shoulder all of that debt well into their 50's.

You should be proud that you saved enough to help her with her first year of medical school. Those costs, especially at private medical schools, are astronomical! I went back to medical school at almost 30. I left a good paying job and had two young children, plus we moved to an area with a much higher cost of living. I took out loans to cover tuition and part of daycare costs (which were over $1000/month). The actual money I received was about $220K but that ballooned to well over $300K by the time all the interest was capitalized through medical school and residency. I don't regret going back for my MD one bit, but I do regret having what we call "the house we don't live in". I will have this paid off within 15 years of finishing residency as well as the mortgage for the house we DO live in, possibly sooner due to working alot of extra hours but I will be close to 50 at that point. Since I wasn't able to put money in a retirement fund during med school / residency, it would be nice to add chunk of change to my retirement fund contribution instead of sending it to Sallie Mae (who I agree is evil and encourages you to take out as much as you can get, rather than just what you can get by on!).

My advice to your daughter is if at all possible, pay the interest throughout medical school / residency instead of capitalizing it if there is ANY way she can do so! And give her my best wishes. It's a long hard road, but well worth it in the end.

 

[disykat]

Some here are saying that younger adults are too naive to take out such loans. What other solution is there though? They can go to community college for a while and stay in state but chances are that they will still have to borrow some money.

That's an attitude I just don't get. My nephew is making pretty good choices about his schooling. He was telling me recently about his scholarships, grants, etc. (His family has very little money so he qualified for a Pell grant.) He'll do fine, but the thing that confused me was why he wasn't working this summer (or ever for that matter) to reduce that loan a bit. In my mind, if he makes $1, that's $1 less in loans.

My kids might have to borrow some, but dh is working overtime, I'm working as much as I can, and both our kids have worked every summer during high school - all for the same purpose - college.

Having to borrow some money seems to mean "borrow as little as possible" to some people, and "since I have to borrow some I might as well go whole hog" to others.

 

[Colleen27]

That's an attitude I just don't get. My nephew is making pretty good choices about his schooling. He was telling me recently about his scholarships, grants, etc. (His family has very little money so he qualified for a Pell grant.) He'll do fine, but the thing that confused me was why he wasn't working this summer (or ever for that matter) to reduce that loan a bit. In my mind, if he makes $1, that's $1 less in loans.

My kids might have to borrow some, but dh is working overtime, I'm working as much as I can, and both our kids have worked every summer during high school - all for the same purpose - college.

Having to borrow some money seems to mean "borrow as little as possible" to some people, and "since I have to borrow some I might as well go whole hog" to others.

With the Pell grant, $1 earned would likely mean less in grants while the loan amount remains unchanged. At least that's what I've been hearing from friends with college-aged kids; it doesn't take much income on the student's end to start losing those grant funds.

 

[leahjade]

Believe me, if I could go back and do it over again, i would have gone to community college for 2 years then to a state school for both undergrad and grad school.

AMEN Our community college here is $1500 a semester! So many of my kids' friends went to private $40,000 a year schools for marketing, psychology or sports management degrees! It's doubtful they will ever make enough income to pay back all those loans. I realize that not every community college has every major, but I know plenty of graduates who went to community colleges who have great careers and no DEBT! Parents of high school students need to do their homework.

 

[Danibelle]

With the Pell grant, $1 earned would likely mean less in grants while the loan amount remains unchanged. At least that's what I've been hearing from friends with college-aged kids; it doesn't take much income on the student's end to start losing those grant funds.

Both of my kids were on Pell Grants (and DS was on a state supplemental grant as well). Both worked part time year round and it did not seem to affect their grants/aid packages.

 

[sissy_ib]

AMEN Our community college here is $1500 a semester! So many of my kids' friends went to private $40,000 a year schools for marketing, psychology or sports management degrees! It's doubtful they will ever make enough income to pay back all those loans. I realize that not every community college has every major, but I know plenty of graduates who went to community colleges who have great careers and no DEBT! Parents of high school students need to do their homework.

You don't need to declare a major in community college. Just get the general education requirements, electives and possibly other lower level courses out of the way.

 

[disykat]

With the Pell grant, $1 earned would likely mean less in grants while the loan amount remains unchanged. At least that's what I've been hearing from friends with college-aged kids; it doesn't take much income on the student's end to start losing those grant funds.

He is in a family of divorce and his custodial parent doesn't work. I'm guessing his FAFSA was probably 0. I highly doubt him earning some money would have changed their need status.

My son worked and had enough money saved that it probably DID affect our FAFSA EFC. However, our need status wasn't high enough for him to have been offered anything but loans. I've known plenty of people who thought "I'd better not have money in savings or I won't be offered financial aid" who spend their money and then discover they only got offered loans. Loans that they wouldn't have had to take had they saved that money for school.

 

[crjack]

My Loan was I believe a 10 year as my payment was $1100 a month. I went to grad school after college so the interest built up after at a rate that I was not anticipating.

Thank you. I'm sorry to hear about your issues with payments.....it's not the first time I have heard that. I have several nieces & nephews with similar stories.

I live in Boston as well and have two teens in high school. We are the college capital of the country and it can be so appealing when touring the schools but the prices are so astronomical.

We've told DD she can go to state school and have no loans and there will even be money left over for grad school, help with first place, wedding, etc. or private school but there will be at least one year of loans on her and nothing else after.

 

[Woth2982]

Thank you. I'm sorry to hear about your issues with payments.....it's not the first time I have heard that. I have several nieces & nephews with similar stories.

I live in Boston as well and have two teens in high school. We are the college capital of the country and it can be so appealing when touring the schools but the prices are so astronomical.

We've told DD she can go to state school and have no loans and there will even be money left over for grad school, help with first place, wedding, etc. or private school but there will be at least one year of loans on her and nothing else after.

It was a nightmare! I would literally be in tears arguing with them on the phone. We didn't have MEFA when I started college. I think it started a few years after. Fortunately now so many people are aware of the situation and are talking about the crisis. Hopefully your daughter makes the right choice. I majored in accounting so I at least have a degree where I can make a decent living, but writing a check to Sallie every month for almost half my take home hurt. If I ever have kids, and if they have to take a loan it WILL NOT be with Sallie Mae.

 

[Colleen27]

Wow, y'all are really putting my annoyance with Sallie Mae in perspective. I had a nothing student loan, 1000, to cover books and fees when I did my tech program, and I thought the loan was paid off many years ago... until we pulled our credit reports in preparation for applying for a HELOC. Now, this is partly my fault - I'm not good about watching my credit, as we're cash-only and there just not much to watch, but as of '04 when we bought our first house the loan was showing as paid current. Now it is showing as in default. I spent 3 hours going around and around between 3 different phone numbers - Sallie Mae, the state loan agency, and a collection company - just to find the record of this default... Turns out there was $6.41 cents outstanding, stemming from $3.74 in interest and fees that accrued between the time I requested the payoff amount and the time they applied my payment. Why they never sent me notice of that, I don't know...

 

[prncess674]

Unless you have personally delt with the nightmare that is Sallie Mae, you can't understand.
.

Yes I have "delt" [sic] with Sallie Mae. My entire education was funded with government backed loans via Sallie Mae. I had no inheritance to fall back on as a safety net.

I paid faithfully my $1100 a month to them, and they would never apply the payments correctly. They send a bill. I pay the amount due plus a little more to attempt to get a head. 13 days later I get a call saying my account is past due, meanwhile I have the cancelled check saying it isn't. Now they charge me a late fee and raise my interest rate. This happened EVERY SINGLE MONTH for 6 months.

This sounds highly unusual. I think there is more to the story.

The calls finally stopped when that life insurance policy from my grandfather paid them off. And THAT is why I call this a ponzi scheme.

I did read the terms and conditions, based on how I read them I did not believe my interest would be 40K! But what does any 18 year old know about anything? How many 18 year olds TRULY listen to everything their parents say? I can't name many. At 18 you think you know everything.

Let's assume you went to 5 years of undergrad and 2 years of grad school. Unless you are borrowing from the mob, there is no way you paid 40K in interest on a 60K loan in a matter of 7 years and 6 months

 

[usd2bmd]

The rule of thumb of not taking out more in loans than your first year salary doesn't necesarily work considering most graduates don't get a job in their field of study.

Students not working during the summer to help with their expenses is not always because they choose not to. Finding a summer job is difficult with unemployment where it is.

Companies are not all offering to pay fdor school anymore. It isn't necessary with the huge number of applicants sending in resumes. They don't need to pay for me to go to school when they can just hire someone who already has and is willing to start for less than they are paying me.

My daughter knows already that she will be going to a community college after graduation. Or possibly a technical school that will give her skills to start a career in about 2 years.

Not everyone is cut out for and not every job requires a 4 year college education. I hate to see kids going to college because everyone drills into them that they have to do it, when they aren't even sure what they want to be when they "grow up"

 

[allison443]

With the Pell grant, $1 earned would likely mean less in grants while the loan amount remains unchanged. At least that's what I've been hearing from friends with college-aged kids; it doesn't take much income on the student's end to start losing those grant funds.

That sounds like the person has the attitude of "why should I work to earn money when the government will give it to me for free" I don't understand that attitude at all. (not attributing it to you!)

 

[Bungle]

I am 30, borrowed 60K to go to college, graduated in 2004. The debt ballooned to 105K over the years due to the Ponzi Scheme that is Sallie Mae. Thankfully my dad was able to help me pay off the debt this year with money that was from a life insurance settlement from my grandfather who died 3 years ago. I have to say the debt was not worth the degree, and the stress and anxiety I had over paying the loan. I was unable to buy a house despite having the downpayment. Now that I have it paid off the inventory of homes stinks! But at least I can sleep at night now.

I'm sorry you had such a bad experience, however I must say that I and my friends that have sallie mae now have not had any of those experiences. Perhaps things have changed or you just didn't really read what you were signing up for. A student loan is no different than a mortgage or car loan in the terms of really sitting down and figuring out what it is going to cost you over the long run. A little pencil work can save a lot of frustration down the road.

As a rule of thumb I think one should never borrow more than what they will earn entry level first year of work and if you can start paying interest while you are still in school.