College Student Loans
I have been helping many people through their Student Loans crises. Since I am one of only a few attorneys in Maryland that handle these cases, I hear the worst and saddest stories. After all of these cases, I know that the easiest way to solve these problems is to prevent them from the beginning. It's like that saying: An ounce of prevention is worth… more than many pounds of Student Loan debt. Here are a couple of suggestions to try to prevent headaches.
- Whatever you do, try to make all of your loans Federal Loans and not Private Loans. The most difficult part when reviewing the paperwork before signing up for Student Loans is that the student borrower does not understand the fine print. Most adults do not even understand the many pages of legalese when signing for these loans. And, now that this is all done electronically on the internet, no one can even read the fine print. Or, it is just much more tempting to hit the "Agree" button and sign the forms. Also, I am not convinced that the college financial counselors are giving students the "full picture" about the difference in loans. The differences between Federal and Private Loans is huge. This is because there are a host of regulations to protect and assist the Federal Loan borrowers: These include: Forgiveness Programs and Income Based Repayment Programs that will allow you to terminate your debt early under certain circumstances- this would apply, for example, if you take a government job, work for a non-profit company or become disabled. If your income is low when you finish your studies, you can request that the monthly payments be lowered based on your income- there are a couple of programs known as Income Based Repayment (IBR) or Pay As You Earn (PAYE). Your monthly payments will be determined by your net income after household expenses. And, if you make the IBR or PAYE payments on time, there is a possibility of forgiveness of the balance owed after a certain amount of time.
Some Private Loans allow for payment reductions for a limited length of time. But, Private Loans are not regulated in the same way as Federal Loans. Because they are Private, it just depends on what the specific lender allows. There are simply less rules to restrict the actions of the Private Lenders.
- Never, ever ask your family or friends to co-sign on your Student Loans. Although this sounds like a wonderful idea and it may reduce the interest rate slightly, this is the kind of long term loan that can tear up families. These are not short term loans or loans that are minimal in amount to help you get a start on your way into the real world. When you default on a Student Loan, ALL OF THE INTEREST DUE BECOMES CAPITALIZED. In other words, if you owe $20,000 on the Student Loan and then you default, any interest in arrears becomes part of the principal of the loan. Suddenly, after a couple of defaults, the loan balloons to $40,000 and then you suddenly owe $200,000.00 in loans because you defaulted on a few other loans at the same time when you lost your job. Now, when you go the family Thanksgiving dinner you have to look your Dad in the eyes, knowing that his security clearance for his federal job is at risk or that your Mom has just been sued for $150,000.00 and she is worried that the family home could be sold to pay for the debt. Now who is the turkey at Thanksgiving supper? Take a look in the mirror & don't choke on your feathers!!
The Moral- before signing on the "dotted line" of Student Loans, do lots of research and be realistic in your goals- Do you really have to go to that private college at $60k per year to studying photography? Can't you learn how to "point and click" at a local college? And, feel free to call people with experience on this subject. I'm waiting by the phone to give legal advice.