Student loans leave lasting pain
A student loan is one of the few sources of money that's still relatively easy to get. But that doesn't mean it'll be easy to pay it back. Susan Goodman reports.
Student loans (iStockPhoto)
More on Education
TEXT OF STORY
Tess Vigeland: Credit is tight for almost everything these days. Getting money for a house, a car, a business? Even with a good credit score it's something of a crapshoot.
Student loans are the one bright spot. You can still get them and they're usually considered a smart investment in future earnings. But with the economy in turmoil, default rates are up. Student lender Sallie Mae says 9.4 percent of borrowers fell behind on payments in the third quarter last year, so college students should think carefully about how much debt they take on.
Susan Goodman reports from Annapolis, Maryland.
Susan Goodman: Many students don't realize just how much it costs to pay off a loan over time with interest. Take Meredith Lathbury. Ten years ago she borrowed $90,000 for law school.
Meredith Lathbury: I was just calculating how much I've paid so far. It's about $86,000. However my loan is for a term of 30 years.
Which means she'll will be almost 60 years old when she makes the final payment. Lathbury currently works as a lawyer for a conservation group on the Chesapeake Bay. She doesn't regret her decision to work for a non-profit, but didn't realize how deeply her loan would affect her life.
Lathbury: You have this huge monthly expense that you cannot miss, but then they say it's good debt because it's student loans. Well, it doesn't feel that good, frankly.
Two-thirds of college students do take out loans and graduate with an average debt of $20,000. But is this "good debt?" Janet Bodnar of Kiplinger's magazine says that depends. Bodnar advises doing the math before taking out a loan.
Janet Bodnar: There are some really neat calculators on line that you can use. You can plug in what you expect your starting salary to be based on the field that you want to go into. You can say, "Gee, wow, that's too much. I'm not going to be able to afford to pay back the loans."
An affordable payment, Bodnar says, is about 8 percent of your income.
Bodnar: It seems like people can really handle that, but once it goes up from that, it might be a little bit difficult.
But difficult could become impossible given the current economy. Robert Shireman is with the Project on Student Debt.
Robert Shireman: Someone who decided six months ago "I should train to be an investment banker and get a job at Lehman Brothers" today would probably discover that the money they put into that education they may have trouble repaying that loan right now.
That may come as a rude awakening for some, as heard on this YouTube spoof.
[Clip from "Student Loans - The Curse of Education"]: This is an automated reminder from your student loan company. Your monthly payment of $1,600 begins immediately. Your carefree days are over."
And unlike some other types of debt, student loans can't be erased in bankruptcy court, which means repaying them is as certain as death and taxes.
From Annapolis, Maryland, I'm Susan Goodman for Marketplace Money.
Comments
Comment | Refresh
From Milwaukee, WI, 03/08/2009
I was wondering if there are any student loan relief programs or payment options for people whose SPOUSES have lost their jobs? I'm making payments on a traditional student loan, and although I'm still (thankfully) working, my spouse was laid off a couple of months ago which of course impacts our joint finances.
From Middlebury, VT, 02/27/2009
To the unemployed person posting above- they'll NEVER "write it off" and that's the problem! The financial nightmare caused by defaulting on a student loan is so outrageous and so out of line with our societal values which allow for discharge or reorganization of debt under certain circumstances. This is a good topic for Marketplace to continue to probe as it is likely to become the new mortgage crisis, if it hasn't already, as so many new defaults and difficulties with repayment are probably happening these days. Allan Collinge ( who commented above) and others have started a much needed movement for reform of these draconian laws in which people who cannot repay under the lenders terms are saddled with excessive interest, penalties and fees with no recourse or real way to get out from under. The whole student loan industry has been created and sustained to benefit the lender and note holder instead of the student and the same greed driven and unregulated excesses found in mortgage banking have enriched the student loan industry at the expense of anyone who can't make the payments. I hope the new administration will really look into this in their efforts to correct our broken economy.
From Charlotte, NC, 01/23/2009
I have been out of a job going on 3 years. I am coming to the end of my student loan deferments. Very soon they will have to write off my loan. It is all out of my hands anymore.
From denver, CO, 01/12/2009
High interest private loans that do not have the same protections/benefits as federal loans are becoming such a huge problem for people. Many have private loan payments greater than their mortgages and even more than their take home pay! Lenders that are getting bailout money are doing nothing to help people with these rediculous loans. We can't even get a hardship forebearance when needed. And forget about going back to school to get an in school deferement...can't be done (I know). If the loans go into default, they tack on 25 percent of the total loan. How can this be legal? With the job losses going on, medical bills, etc etc as a last resort if you feel you have to file for bankruptcy, you can't even get these high interest, unsecured, non-federal, private student loans discharged! Something needs to be done to help us!
From Chicago, IL, 01/11/2009
The idea that a 4 year college degree is a good investment has already been arbitraged away. Too many did it and drove the value down. Now you need a valuable degree from a valuable institution. An Engineering degree from a good Midwestern state school such as U of Illinois or Purdue still has a good return. A degree in the arts from a small liberal arts college does not. If you intend to get a degree in the arts or philosophy from a small private college you would be best to consider the money spent as though it were for leisure instead of as an investment as it is highly unlikely you will become a college professor. Look around in the classes and see 30 or 40 of you needing a total of 5 instructors per semester. The math is pretty clear. While a love of art is great, recognize most people do one thing for enjoyment and another to pay the bills. I am a chemist, but would really love to be a pilot. Being a pilot is a long shot, with many working at Home Depot. Being a chemist is a relatively sure thing as it is a skill that is less common and needed at some point in the manufacture and development of every physical object.
A degree in the basic sciences or engineering is pretty flexible due to the specific skills and the problem solving skills that are taught. Many of Wall Streets titans have been physicists or engineers.
As always, if you borrow to invest, make sure you invest in something of value and the investment will pay dividends and not just be burden.
From Los Angeles, CA, 01/11/2009
I graduated from college in '91. I am still lowly paying off my loans. There are two point your story missed that quite important.
First, for a show that prides itself giving financial advise to only say it is called "good debt" because it is for education is amiss. Student loan interest is taxable in the year paid. Lowering one's taxable income unlike other debts.
The second comment regarding not being able to refinance more than once. I am stuck paying 8% interest on this debt despite my high rate rating.
From WV, 01/10/2009
To college loanconsultant
"Student loan forgiveness programs exist in every state. For health, education, law, and public service fields especially, it is a good idea to check out what programs are offered in each state when deciding where to settle after college."
My training is in none of those fields. What now? I can't even get a job in those fields, I have tried. I'm over qualified or under qualified or not enough experience".
I was a victim of the student loan farming that took place in the 1980s, according to congress's own records. They knew we were cheated by the schools. Where is my relief? Instead I have a life long debt I cannot ever pay unless I die, or win the lottery. Ive been turned into a 3rd class citizen by a group of crooks, and congress is accessory to their crime by knowing what was done, and not offering us any relief from the crushing debt. I will die a poor man, because I cannot save anything for my retirement, without government stealing it to pay some fat arse CEO who did nothing to claim that I owe 7 times the original amount borrowed. The schools were never held accountable, USDE's lack of oversight and dismal failure (according to Congress) also contributed. So I should have to suffer for how long?
And the 20 year income based repayment forgiveness plan? You gotta be kidding me. After its all done the balance is taxed as income, and if that balance has not shrunk, (and in most cases it will continue to grow) then instead of paying USDE, we end up paying late fees and interest to the IRS.. so all that does is shift the debt from one government agency to another.
MOST of these loan contracts (that I have seen,) from before 1995 didn't even contain the terms and payment schedules of the payments. I.E FULL DISCLOSURE was never made. Government claims to be a party to the contract, yet no signature from any government representative appears on any paperwork.
Government operates on the presumption that anyone applying for loans is out to defraud the government, when in fact, history shows us, its the government who is defrauding the public, first with the students, then for bailing out the loan companies, many of which have been proven to have defaulted students without even trying to collect the debt. And now the government is going to bail out another group, but it won't be the students.
This is why so many of us are either leaving the country, committing suicide, or hiding as best we can, constantly on the move. We will never be able to live normal lives with this albatross hanging over our heads.
And soon enough of us will exist that we won't be about to buy homes or anything then the frigging bankers will complain about that too.
Well, it will be like the auto industry that moved its jobs overseas leaving people to take lower paying jobs, who then could no longer afford to buy the american cars and trucks. The auto industry did itself in. And soon the banking industry is going to do the same with all its greed.
From University Place, WA, 01/10/2009
There is a major crisis in this country with this unprecedented, and uniquely predatory debt instrument.
Student loans barely existed 30 years ago. Since then, however, universities have raised tuition at twice the Consumer Price Index- year, after year, after year. This increase in cost was shifted largely to the students, and usually in the form of increased loans. It should come as no surprise that today, the average undergrad borrower leaves school with $23,000 in student loans.
It gets far worse, however: the industry actually makes ALOT of money from federal loans when they default. In fact there is an entire network of large, state run entities who make the majority of their income from the collection costs fees, and interest that they are legally allowed to charge borrowers, and collect using wage, income tax return, Social Security, and even Disability income garnishment (all without a court order), in addition to the standard collection powers that exist for "regular" loans.
This often turns what began as an unmanageable debt into a lifelong, neverending, predatory, monstrosity, sucking many multiples of what was originally borrowed from the misfortunate borrowers. This is all sanctioned, mind you, by the federal government, which according to the Wall Street Journal, is also making- not losing- money from defaulted loans. So much for the oft repeated dogma that defaulted borrowers are a "drain on the taxpayer".
There are many similarities here to the home mortgage industry: Lack of meaningful governmental oversight of the lenders, massive inflation in price, and a corresponding increase in defaults (despite misleading default claims put out by the industry, the true default rate for student loans is about 1 in 4).
But there is a key difference: defaulted home mortgage borrowers can, if all goes badly, file for bankruptcy protection, and get a fresh start. Student loan borrowers, however, are stuck with a massively inflated debt, with no recourse under the law. Why Congress decided to remove this standard consumer protection from student loans (and ONLY for student loans) is beyond me, especially given that when student loans were treated the same as every other type of loan, less than 1% of these loans were discharged in bankruptcy. So there was never any problem, but Congress imposed a solution. In 2005, The Industry convinced Congress to go even a step further, and remove this protection for private, non federally guaranteed student loans!
Today, this deeply lucrative, and uniquely predatory debt instrument has achieved a stranglehold on the lives of millions. Decent citizens who are unable to pay the dramatically larger amounts being demanded of them are literally being forced out of the mainstream, and off the grid due to student loans. People are even fleeing the country specifically due to their student loans.
ENOUGH!
Congress has protected the interests of the banks for decades- usually at the expense of consumer protections...I think that all will agree (except, perhaps the bankers) that the results of this were not desirable for the population. In fact, they were closer to catastrophic.
Congress and the new president must act swiftly to restore standard bankruptcy protections to all student loans. Further, Congress should reinstate statutes of limitations on the debt (yes, these are gone too), force all student loan companies to adhere to the Fair Debt Collection Practices Act (The state agencies described earlier are specifically exempted from this). Further, Congress should end collection practices such as taking citizen's Social Security , Disability , wage, and tax income without a court order.
Only with these protections in place will the federal government be properly incented to address the other critical issues in higher education, such as cost, and price.
From Albany, NY, 01/10/2009
Student loan forgiveness programs exist in every state. For health, education, law, and public service fields especially, it is a good idea to check out what programs are offered in each state when deciding where to settle after college.
state college loans
From Duluth, MN, 01/09/2009
It may sound great that student loans are still available to most students in search of them, but it seems to me that getting a 4-year degree has lost its luster these days because of how difficult it is to find employment (at least in the midwest). I am graduating from the University of Wisconsin-Superior this Spring and am already signing up at a Technical college in search of an AAS in a comepletely different field as it will provide a much better career opportunity for me. A bit ironic, right? I go to college for a "4-year" degree (this is my 5th year) and wind up taking a step back to get a 2-year degree.
From Ocean View,, DE, 01/09/2009
What about the program for people earning low working for non-profit who have loan forgiveness after 20 years?
Post a Comment: Please be civil, brief and relevant.
Email addresses are never displayed, but they are required to confirm your comments. All comments are moderated. Marketplace reserves the right to edit any comments on this site and to read them on the air if they are extra-interesting. Please read the Comment Guidelines before posting.
You must be 13 or over to submit information to American Public Media. The information entered into this form will not be used to send unsolicited email and will not be sold to a third party. For more information see Terms and Conditions and Privacy Policy.