TrudyBeerman

Paying Back Student Loans. Challenge to Pay Student Loans After Graduation.

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Student Loans

paying back student loan

My son and his classmates welcoming the freshmen to the Stanford University Florence Dorm.

Student loans are relatively easy to get regardless of your credit.  With the poor job market, and the challenge to find jobs with flexible work hours, many students end up taking out more loans than is needed for their education, to use on living expenses.

Once graduated, the jobs that allow them to repay these debts are difficult to get, and the cycle of indebtedness grows as they continue to use debt to finance life.

The new professionals are so distracted by debt, they can hardly focus on personal growth and development of their newly earned degrees.  So help us weigh in on the matter as we look at student loans.  Are they a help, or a trojan horse?

The inspiration to do this piece came from a collegue seeking our help.  He is a lawyer who just landed his first real law job fresh from passing the Florida Bar.  As his story goes, while a student in college with the weird class hours and the even more hectic study schedule, it was difficult to get and maintain any meaningful work.  He used credit cards and student debt to buy food, clothing, and other general expenses.  He even used credit cards and student debt to pay for the apartment he took to live near campus to reduce commute time, but that meant paying premium for housing – but he felt that single decision helped him keep plugged in to study groups and the library. Without any scholarships to help, financial aid and credit cards paid his way through school.  Once graduated, it took several attempts to pass the bar and during that time, without the bar under his belt, and the economy already having huge job challenges, he went almost two years with sporadic meaningless jobs that didn’t pay enough to live, let alone repay student loans.  Deferred until just now that he finally landed a job in law, he now finds that although his pay check that should be quite fine for the average person, is still inadequate.  He has a family, and after paying mortgage, car note, utilities, etc, and his student loans and credit cards, he is still in the negative causing an continued dependence on debt to finance his life.  Sick of the burden of the debt, he approached Debt Free Wealth for help.

We are currently working with him to help him begin to create his own path to debt free wealth.   However, it brought this issue of student debt back to my list of topics to cover on Debt Free Wealth Radio and on this blog, because I am sure there are other students or future students who may benefit.

The Government and Student Loans

This topic is also very relevant for this time as  a CNN Politics article that appeared yesterday,  reads http://www.cnn.com/2012/06/21/politics/obama-student-loans/index.html  “With time running out for Congress to prevent a doubling of interest rates on federal student loans, the White House and Republican leaders exchanged accusations Thursday on who was to blame for the lack of an agreement. [ ] Leaders of both parties insist that they want to keep the federally backed rate at 3.4% for another year, but they sharply disagree over how to pay the $6 billion cost.  [ ] If Congress fails to act by July 1, the rate jumps to 6.8%, with an average cost to students of $1,000 in increased loan debt, according to the White House.”

According to data from the US Bureau of Labor, overall, US unemployment now stands at 9.1%. Rather than sit around, many unemployed Americans have headed back to school.

Of course, returning to school after a sabbatical from work does make a lot of sense. Learning a new skill may open up new income opportunities. Getting out of the house, meeting and networking with others also beats becoming lazy, crazy, or bored. In addition to the many other benefits of returning to school, getting access to educational federally backed loans that have no bearing on a now depressed FICO score or bankruptcy history, is a ‘hush hush’ benefit that cannot be denied.

It certainly seems more honorable to go back to school than to sit on the sofa and create a permanent imprint of your ever-expanding rear. However, no matter how honorable, justifiable, and entertaining – going back to school also adds to the burden of DEBT!

When you consider that the average college tuition cost has increased by 900% since 1978 in the USA, and that the average student racks up about $25K in debt by graduation, plus the fact that within 3 years, 14% default on their student loan; student debt is on the horizon to becoming the next national financial headache.

Student Loan Debt Statistics

Using this data of the average student racking up $25K in debt by graduation for the typical 4 years of college, using a college loan calculator (again clickable links will be available for you at endmoneyproblemsnow.com)  here is how that would break down.

Loan Balance:

$25,000.00

Adjusted Loan Balance:

$25,000.00

Loan Interest Rate:

6.80%

0.00%

Loan Term:

10 years

Total Years in College:

4 years

Average Debt per Year:

$6,250.00

Now assuming you did not
Defer this beyond graduationAnd you had a mind to payYour debt off without escalatingThe payments:
Monthly Loan Payment:

$287.70

Number of Payments:

120

 Or 10 years
Cumulative Payments:

$34,524.14

Total Interest Paid:

$9,524.14

 

It is estimated that you will need an annual salary of at least $34,524.00 to be able to afford to repay this loan. This estimate assumes that 10% of your gross monthly income will be devoted to repaying your student loans.

My children knew during their middle and high school years that I had no intention of paying for their college. I told them that repeatedly during their lower years so they would know ahead of time not to expect that financing from me.  I also encouraged and facilitated their academic achievements so that they would have scholarship and other options available to them.  My two college age children have different experiences with their college financing. My oldest was so caught up with being beautiful and popular during high school, she did not have the grades for a scholarship, but she did qualify for the Pell grant and she very wisely, did not take one dollar more in loans than was required for her tuition and some of her books.  She works while she is in school to pay for her additional needs.  My other child had a 7.2 GPA in his IB high school program, and had backup options because he was also being courted by several ivy league schools offering a football scholarship, he also had the option of picking up scholarships for playing the bassoon if he wanted to continue in a school band. In the end, he earned a full academic scholarship to an ivy league school, picked up an additional small private scholarship, as well as the Pell grant etc.  Except for a very small loan to have access to emergency money, he will be starting his third year and has taken out less than $2500 in loans to date.  He was able to go through his first two years without even needing an on-campus job, but he will have one for his third year.

I know some parents are thinking it harsh that I opted not to finance my kids college.  Any money I did give them to help with school is a gift – not a loan they owe me, but I figured that if  they wanted to go to college, and THEY valued the education then they needed to pay for it.  I decided that was how I would approach my children’s college while I was myself a student.  In college during my time I observed, some students with the silver spook in their mouths did not always appreciate it and wasted their time and their parent’s money, I even witnessed the atrocity of students getting their classes paid for, then canceling it so they could get the refund due to their parents and cash it in.  I also saw student deliberately extend their study time by going part-time so they could extend their access to a continued flow of student loans.  While definitely not an absolute generalization, very often when someone gets something of value without any personal cost or investment, it is not treated with the respect due.

I also decided back then that I would not co-sign nor apply for loans on their behalf because I have seen too many parents left holding a debt for a delinquent child.

I would rather help my student repay a student debt AFTER they have  demonstrated good stewardship during college and completed their program, than pay up front and hope they finish up and follow through.

There are many ways to finance college.   Several have already been mentioned:

There are 3 major categories for educational loans: student loans (e.g., Stafford and Perkins loans), parent loans (e.g., PLUS loans) and private student loans (also called alternative student loans).  Recently,  peer-to-peer education loans have become available.  Federal education loans exceed more than $100 billion and approximately $10 billion in private student loans originate each year.

Student financial aid can take the form of federal and state government offered loans, grants and scholarships, on-campus work study, ROTC, having the military pay for it,  private and college funded scholarships based on specific qualifying criteria, private loans, parent financing, student employment, gifts and so on.

The Montgomery GI Bill, has been cited as a main reason many people enlist in the armed forces. Even then, the GI Bill benefits cover only about three-fifths of the average cost of a college education.

I have a link for you to 45 of the  weirdest college scholarships you have probably never heard of.  http://www.zencollegelife.com/45-of-the-weirdest-college-scholarships/

Who knew being taller than 6? 2? qualified a person for a scholarship? Would you even think to check? How about applying for a $3000 scholarship because you created a prom dress out of duct tape? Well, there is an app ( scholarship application ) for that too.

So, is student debt a help or a Trojan horse?   Well, I think it can be both.  Student debt options are simply tools in the hands of students.  Some use debt wisely, taking only what they absolutely need to get through that education, and some take full advantage of the credit ignoring free flow of funds as long as you remain a student and finance their life on debt.

Here is the bad news folks: if your personal debt burden is overwhelming, I hate to tell you this but, typically, student loans cannot be discharged in a bankruptcy. Consult your legal counsel regarding your particular situation.   If you were able to qualify for a consolidation loan and pay off your student loan, you may be able to stretch your payment over a longer period.  Later, if you still cannot avoid bankruptcy, unlike most student debt, the bank and other privately financed loans usually can be discharged in a bankruptcy.
Stafford Loan Forgiveness is a student loan forgiveness program for people who meet certain requirements.  Circumstances for Federal Stafford Loan Forgiveness   http://www.staffordloan.com/repayment/forgiveness.php
Under certain circumstances, the federal government will cancel all or part of an educational loan. This practice is called “loan forgiveness”. To qualify for Federal loan forgiveness, you must:

  • Perform volunteer work
  • qualify for public service loan forgiveness
  • Perform military service
  • Teach or practice medicine in certain types of communities
  • Meet other criteria specified by the forgiveness program

Stafford Loan Forgiveness for Volunteer Work

These volunteer organizations offer federalStaffordloan forgiveness:

AmeriCorps : Serve for 12 months and receive up to $7,400 in stipends plus $4,725 to be used towards your loan.  .

Peace Corps: Volunteers may apply for deferment ofStafford, Perkins and consolidation loans and partial cancellation of Perkins Loans (15% for each year of service).

Volunteers in Service to America (VISTA): Volunteer with private, non-profit groups that help eradicate hunger, homelessness, poverty and illiteracy. Provide 1700 hours of service and receive $4725.

Military Stafford Loan Forgiveness

Students who are in the Army National Guard may be eligible for their Student Loan Repayment Program, which offers up to $10,000. (Note, the military and veterans’ associations provide many scholarships and tuition assistance programs. See the section on Military Aid for details.) This practice is comparable for federalStaffordloan forgiveness.

Teaching Stafford Loan Forgiveness

Students who become full-time teachers in an elementary or secondary school that serves students from low-income families can have a portion of their Perkins Loan forgiven under The National Defense Education Act.

Students who majored in education and teach inMississippimay be eligible for the William Winter Teacher Scholar Loan. This program forgives one year of your loan in exchange for one year of service (it forgives two years of your loan if you teach in a shortage area).

StaffordLoan Forgiveness for Legal and Medical Studies

Many law schools forgive law school loans of students who serve in public interest or non-profit positions.

Similarly, groups like the National Health Service Corps offer medical school loan forgiveness programs to physicians who agree to practice for a set number of years in areas that lack adequate medical care (including remote and/or economically depressed regions).

Many hospitals and private healthcare facilities use loan forgiveness to recruit occupational and physical therapists.

Other Paths to Federal Loan Forgiveness

Students who receive the Michael Murphy Loan to study law enforcement, law, probation and parole, penology, or other related fields are eligible to work off one-fifth per year as a State Trooper (or related law enforcement official) inAlaska.

Maryland state and local government employees who earn less than $40,000 gross annually may be eligible for a loan assistance/repayment program to study law, nursing, physical and occupational therapy, social work and education.

Perkins loans can be cancelled for full-time service as a teacher in a designated elementary or secondary school serving students from low-income families, special education teacher (includes teaching children with disabilities in a public or other nonprofit elementary or secondary school), qualified professional provider of early intervention services for the disabled, teacher of math, science, foreign languages, bilingual education, or other fields designated as teacher shortage areas, employee of a public or non-profit child or family service agency providing services to high-risk children and their families from low-income communities, nurse or medical technician, law enforcement or corrections officer, staff member in the educational component of a Head Start Program, service as a Vista or Peace Corps Volunteer and service in the Armed Forces (up to 50% in areas of hostilities or imminent danger).

See also the US Department of Education’s pages on Cancellation/Deferment Options for Teachers and Cancellation for Childcare Providers at www.ed.gov.

Here are some additional tips from my friend and Student Debt Advisor, Juli Becker.

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