Considerations & Consequences of Student Loan DEBT

The following is meant for information purposes only and to provide information, insight, tips and raise awareness of the student loan dilemma.

YES – this is a REAL crisis for the student and parents. The “college” experience can be VERY expensive down the road for all concerned. The total cost of a college education is just incredible! Tuition, room and board, fees, travel, spending money, etc. When one says they are paying $60,000 a year that is NET dollars. On average one needs to earn about $80,000 or more to pay $60,000 net. And consider that many students don’t go to college for just four years. Many go 4.5 to 5 years for their undergraduate degree. Also consider that unless you go to a top school in the land, it really doesn’t matter where you get your undergraduate degree from. Yes a degree from Princeton, Harvard, & Stanford does open more doors but that list of schools is small. What really counts in a career is what one does when they are actually in the job. And the type of degree is critical. Accounting, finance, cybersecurity, computer security, engineering, medical, are some of the critical fields.

What to do. What is the initial first step? No one answer is good for all. But what everyone needs to do is sit down with their kids and have a frank discussion about the current and future costs and ramifications of the education process.

Some talking points:

Don’t extend the college experience and the cost.
Pick a course of studies that will give you a good chance of getting a job.
Getting good grades is imperative. This is their first JOB. Maintain at least a 2.5 GPA to graduate on time.
Consider going to a Community college for two years then transfer to a four year school. Your diploma will be from the four year college. Incredible savings.
Consider the following. The interest rates are a tad high. Figure out how much your monthly debt will be when the loans have to be repaid after graduation. Let’s say its $700 a month for 5 to 10 years. Trying to get a home loan or car loan when you already have a monthly debt of $700 a month can be difficult. A master’s, law or medical degree & the numbers get higher & so do the repayment years and total dollars owed
S/L debt may mean moving back in with the parents after graduation.
S/L debt is currently not forgivable, in most cases. Believe it cannot be included in bankruptcy unless you can prove undue hardship. Consult with a lawyer on this. Might mean not getting a job if it affects your credit score.
There are about 40 Million borrowers that owe about 1.6 TRILLION in student loan debt.
Talk to someone who is living with this debt and get their perspective. (See attached link for some true stories). https://www.yahoo.com/lifestyle/7-millennials-share-lives-change-165527760.html
Go to a State school and or commute to college from home to reduce living expenses.

Some numbers –

Almost 10 million students have student loan debt of $100,000 or more (not counting interest cost)
People ages 22 to 35 have difficulty buying a home because of their monthly S/L payments.
Graduates can’t save for retirement or a home down payment because of their S/L payments.
In 2018 about 70% of students had student loan debt. Average of about $30,000 in debt. And their parents borrowed about $35,000 in federal Parent Plus loans.
Student loan debt exceeds total credit card debt by over 500 BILLION dollars. YIKES!
11.5 % of student loans are 90 days or more delinquent. This kills a credit score.
Average monthly payment is about $400.

Parents may get stuck down the road for the loans they guaranteed/co-signed for. Federal Student Loan delinquencies can be problematic. If the kids don’t pay the parents might have to. And let’s say a parent is on Social Security and they or their child doesn’t make the payments, their SS monthly payments may be garnished. There are about 170,000 people in this situation. And they may grab your federal tax refunds, garnish you paycheck, and hire debt collectors. The government can even sue you and if they win may place a lien on your home.

You could be denied a job or new credit if delinquent or have excess debt outstanding. They may even go into your estate after you die.

Federal vs. Private Student loans – Subsidized or unsubsidized. Should I defer payments after graduation? Should I consolidate the loans? These are ALL scenarios that need to be considered carefully. Talk with a professional before deciding

Bottom line. Both the student and the parent need to think about the future after college and the consequences of this debt. Anxiety levels may rise. Don’t ruin your life with student loan debt. And if you settle student loan debt for less than owed a couple things might happen. Forgiven portions of the debt might be taxable, & it might get reported on your credit report as a derogatory item. Be sure you know the pitfalls before agreeing to a settlement for less than owed. And be aware of “student loan debt scams”. If an offer sounds too good to be true, it probably is.

Some considerations, and thoughts:

Parents can use the equity in their home to finance education but that might delay their retirement.

Delinquent Payment – 30 days or more late – affects your credit report negatively.

Default – 270 or more days late in most cases – loans can be called for entire balance. This becomes a very negative collection item and may be sent to debt collectors. Wages may be garnished.

Overall default rate is around 11.5% - which is very high.

Consider Military options for assistance in paying for college. EXPLORE all financial aid options.

Don’t count on Presidential hopefuls making wild election year promises to bail you out.

You basically own this debt until it is paid off.

Hopefully this blog will make all concerned take a close hard look at the College Education decision. Please make sure you children get a chance to read this. They need to know the full and true cost of their education.

Dennis Dovie | 05/01/2019

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Considerations & Consequences of Student Loan DEBT