Money Matters: Student Loans

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On the matter of taking out student loans,

Don't do it.  Just don't.

The exception is if you have a balance on your tuition and you need to buy books, borrow ONLY that amount and not a penny more.

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It's tempting to max-out your loans and be flush with money during the semester.  I did it. I borrowed every penny for which I was eligible. I didn't need the loans to pay my tuition or books; PELL and TAP took care of that.  But the temptation was strong, and I did it anyway. I racked up a total of over $25,000 in student loans by the time I was done with graduate school.

What did I do with all that money?  I bought a car, new clothes for me and my kids, bought Christmas presents, paid my rent, gave money to family and friends.  It was SO great to get those big checks every semester!

Looking back, though, I really wish I hadn't.  It took me over 15 years to pay it off.  

FIFTEEN YEARS.  

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Do you want to be paying off loans that you didn't need for 15, 20 or 30 years?

When I made my monthly loan payments (which took a huge chunk out of my paycheck, by the way), I was essentially still paying for that apartment I no longer lived in, a car I no longer owned, a stereo I got rid of a long time ago, clothes I no longer wear, and money I loaned that was never paid back.

What a waste.  What a HUGE mistake.

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If you've even remotely thought that you can get away from just not paying them back, beware.  If you default on your student loans, here's what will happen:

• The IRS will take all of your tax refunds until the loans are paid off (plus interest and collection fees)
• Your paycheck or wages will be garnished by the IRS
• If you collect Social Security or SSI, it will be garnished
• Your bank accounts can be frozen and drained by the government
• The federal government can sue you and you'll have to go to court
• You'll need to hire an attorney (BIG BUCKS)
• If you fail to appear for court, a warrant for your arrest will be created
• Don't believe me?  Read about what happened to this guy.
• Your credit score will tank (Read here to understand why this matters.)

When people fall on difficult financial times, one solution is to declare bankruptcy.  Since the passing of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, no student loan--private or federal--can be discharged (forgiven) in bankruptcy.  The only exception?  The person declaring bankruptcy must be able to prove that the debt repayment would cause "undue hardship," which is extremely difficulty to do except in case that the person is severely disabled.

There are alternatives to taking on student loan debt: 

• Consider attending part-time and pay out-of-pocket whatever financial aid doesn't cover.  
• Consider attending a community college where the education is equivalent to the first two years at any four-year school and the tuition is ridiculously low.  
• Consider waiting until you've saved enough money to afford college without having to take out loans.

Resist the temptation.  

PLEASE.  

It will be hard to do now, but you will be SO glad later.

Trust me on this one. 

(c) Robyn King. All Rights Reserved.

Money Matters: 6 Reasons to avoid defaulting on your student loans

You know all the reasons why getting a college education is the answer to your future success and why it's worth the investment.  Realistically, sometimes paying off the loans that funded your education can be challenging.  But defaulting on your student loans is a very serious problem that can be avoided.  Here are some excellent reasons not to default on your student loans. 

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1.  Debt collectors are aggressive.

If debt collectors are sometimes likened to junkyard dogs, the Department of Education would be the one who is not chained or fenced. They may call you repeatedly and become a nuisance and embarrassment to you. 

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2.  It will cost you more in the long-run.
Skipping or making late payments will result in additional fees and penalties that can add up quickly.  If you fully default and stop making payments altogether, those costs can skyrocket.  Eventually, you'll have to pay for the original amount of the loan(s) PLUS inflated interest, penalties, and even legal costs if you let it go that far.

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3.  Student loans don't go away.
There is no statute of limitations on federal student loans, which means its collectors can chase you to your grave.  Along the way, your loan originator can take your tax refunds and garnish your wages without having to go to court. They can even take a bite out of your Social Security checks after you retire, something other creditors cannot do.

4.  Student default will hurt your credit score.
A single missed payment will label you as "delinquent," but when your payment becomes 90 days past due, your account will be reported to the three major credit bureaus and your credit score will tank.  This means you'll pay a high interest rate when you buy a car or get a credit card, and your car insurance premiums will be sky-high.  The size of deposits required for utilities and cell phones will be huge, also, as a result of poor credit.

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5. It can impact your ability to get a job.
Credit checks have become routine for some employers doing background checks on potential employees.  Do you think you'll get hired if you have a poor credit score because you purposely ignore your financial obligations?

6.  It can affect your ability to get a decent apartment.
Landlords are routinely doing credit checks on potential tenants because they want to be sure that the rent will be paid on time and in full.  If you have a good credit score, it shows that you're responsible with your money and pay your bills on time.


Source:  Charter College and Reuters
(c) Robyn King.  All Rights Reserved.