College debt: you pay it, but it keeps growing? How?

[Garga]

This article has a series of tweets about college debt.  People write in things like, “I owed $40,000 in college loans, have paid $20,000, and now I still owe $38,000”.  (I made up those numbers, but those are the sorts of things they’re tweeting about.)

https://www.boredpanda.com/student-debt-crisis-posts/?utm_source=facebook&utm_medium=social&utm_campaign=organic

 

What?  

How does this happen?  I figure it’s something about interest being paid and payments not going to principle?

But the bigger question is:  how is it avoided?  Is this only certain types of loans that work this way?  What awful loans are they?  How do you avoid them?  How does one get a reasonable loan?  Can you?  

I knew that college costs a lot and I figured my kids could get some loans and then would pay them back, but I did NOT know that they could pay back tens of thousands of dollars and have only a few thousand knocked off the loan.  How can you get a loan that works like normal where if you put a bunch of money toward it, it actually does down and you can pay it off in a few years?

[Ausmumof3]

I’d assume they’re only paying off the minimum which is not keeping up with the interest?  Even if you just pay the interest it should stay steady unless there’s some horrible annual fees

[8filltheheart]

Honestly, I think a lot of the info being pushed right now is to make loan forgiveness a political topic.

I read this yesterday. This guy thinks he is right. http://money.com/money/5647242/student-debt-money-makeover/   

If you only make  interest  payments, your loan amt won't go down. If you defer payments, your interest grows.  If you make full payments, loans should be paid off in 10 yrs.

I have an extended family member who took out over $100,000 in student loans. She initially took them out planning on not paying them back bc she figured that loan forgiveness was going to be a thing. When she first graduated, she initially deferred payments. Then she only made interest payments, etc. It kept snowballing. (And while this was going on, she bought a brand new car, traveled to France, went hiking across Europe, etc. multiple times.)  Then she fell in love with a guy who won't get married until she pays of her loans. Now she is working toward paying them off and should have them paid off in a couple more yrs.

[Sherry in OH]

There are many types of college loans.  Payment on federal student loans is ususually deferred until the student is no longer enrolled at least half-time, unless the loan is subsidized, however, interest accrues during the deferrment and is added to the principal.   The interest rates on federal student loans are low.   Students who don't qualify for federal loans or who need more money, may take out private loans.  Private loans are unsubsized and have higher interest rates (sometimes much higher) than federal loans. Payment may or may not be deferred.  Some students use credit cards to cover expenses.  They have even higher rates and no deferrment period.  

A student who borrows $10,000 a year for four years, owes the $40,000 plus accrued interest and fees at graduation.  The repayment plan selected will affect how much interest he/she pays going forward.  The standard plan is designed for the loan to be paid off within ten years.  It has the highest monthly payment but least total payment. Income driven and extended payment plans have lower monthly payments, at least initially, but since the loan is extended for up to 30 years, total interest payments are higher.  

As with mortgages, most student loan payments for the first few years of repayment is interest rather than principal. In the early years of an extended loan, payments may only cover interest.  If the student enters forbearance at any time during repayment, interest continues to accrue.

[rjand6more]

Student loans ARE reasonable.

How do you avoid a similar situation described? 

Try not to take out unsubsidized loans.  These begin to accrue interest immediately. So, if you sign these loans freshman year, you already have a substantial amount of interest tacked on by graduation.

Begin payments right away.  Do not defer.  Interest still accrues during the deferment period. And you also pay interest ON the interest.

Pay more than the payment amount.  Whatever extra you can manage.

[Kuovonne]

What about requiring students to demonstrate financial literacy before allowing them to take out a loan? While I don’t like the idea of adding another hurdle to higher education, making sure that kids actually know what they are getting into when they sign these loans might help.

Whenever I have taken out a loan, the terms of the loan have always been explained to me. However, I have never had to demonstrate that I actually understand the terms of the loan. It is way too easy to tune out the explanation. (I’m not saying whether or not I actually understood the terms of the loan, but rather that I never had to prove that I understood.)

Proving financial literacy could be accomplished in a variety of ways:

- Passing a standardized test about financial literacy

- Having a credit score above a certain threshold (student’s credit score, not parent’s)

- Portfolio review that includes looking at use of credit cards, checking account, job history, past and future budgets, job prospects for selected major, etc.

What if the ability to take out a loan was similar to getting a driver’s license? My daughter is working on getting her driver’s license, and it is a long process. In addition to the age requirements, she has to have a minimum number of hours of classwork, pass a written test, log a minimum number of hours behind the wheel, watch a video about the the dangers of distracted and drunk driving, and pass a road test. She has been working on the process for over a year, and after she gets her provisional license, it will be several more years later before she has a full, unrestricted driver’s license.

What if taking out a loan requires passing a written test, being a named user on a check account or credit card with a minimum number of transactions for a minimum number of months, and watching a video about the dangers of financial bankruptcy? Then also have a cap on the  maximum amount of the loan. While kids under 18 currently can’t have a credit card in their own names, they can be authorized users on a parent’s credit card much younger. Or they could get a secured/prepaid credit card. Many banks have free checking accounts for students.

Edited June 20, 2019 by Kuovonne

[8filltheheart]

There are already caps on federal loans. For UG, the limits are 5500,  6500, 7500 (for yr 3+) with a maximum of $31,000 (4000 then 5000 more for indepdent students or students whose parents get denied for plus loans with a max of $57,500 which should be completely unadvised!)

More than that in loans requires a cosigner and private loans. 

One issue in this country is an entitlement attitude where going away to a dream school or sleep away college is every student's right.  Commuting to a local school or CC denies students "the college experience."

There is also constant misinformation told to kids that the only way to get a good job is with a 4 yr degree (which is false.) My Dd with her 2 yr degree makes significantly more than her cousin with her master's. Instead of looking down their noses at trades or 2 yr degrees, more students (and our society) would benefit from students attending low cost CCs vs debt for 4 yr degrees. (And offering greater support for those at CCs who don't have strong academic or employment support/backgrounds. Right now, way too many drop out wo finishing their degrees.)

Understanding **real** employment options and real life salaries for the degree they are pursuing is another major hurdle. Too many kids are convinced they are going to be making 6 figure salaries as a new grad. Or step into the career of an experienced worker (like the guy in the article I linked......goal to be an international correspondent. Did he think he was going to walk off the stage with diploma in hand and be offered coveted stories/travel with top pay in a world where newspapers and magazines are folding?)

https://www.inc.com/minda-zetlin/college-grads-overestimate-starting-salaries-study-shows.html

[SKL]

Some loans are interest-free until some time after you graduate, but some are interest-bearing and the interest accrues, capitalizes, and generates more interest during and after one's higher education.  I'm not sure, but possibly some repayment options (the ones where your payments start out slow and increase as you make more money) may not cover all of the interest in the early years - hence even more capitalized interest to fuss with later.

It is complicated for a non-finance person to plan for student debt.  I really think every college-bound person should have to take a mini-MBA course.

[SKL]

The issues in most of those "tweets" still go back to no apparent accountability for making a choice without considering the cost.  Would we rather not have educational options for people who aren't rich?

I do agree that college tuition is too high, but there are options other than paying $25,000/year for art school / recreation degree.

I graduated with $85,000 in student loans in 1992, so I know what it's like.  Interest rates on those loans were 9% to 12%; my monthly minimum payments were about $1,000.  I did have to go into forbearance for a short time early on.  But it was not a death sentence.  Did it motivate me to work my butt off doing things I might not have always enjoyed doing?  You bet it did.  Did I share lodgings and get accused of being Mother Teresa?  Yep.  Did I pay it all off and come out the other end better?  Yes I did.

People who are not ready to accept the responsibility have no business signing a promise to pay.

An education is an investment, not an entitlement.

And, if something sounds too good to be true - it probably is.

[8filltheheart]

1 minute ago, HeighHo said:

CCs are not always a huge bargain compared to U.   Taking into account the cost of living, the transportation, and the part time job availability can upend that assumption.

It is hard to fathom a CC costing equivalent to a U.  Many Us require on-campus living with food plan for freshman.  That alone can cost $10-$15K w/o even factoring in tuition (which is more than CC tuition.) With the exception of extremely HCOL areas where living on-campus is actually cheaper than off-campus (definitely the case at Berkeley where ds's rent is going to be about 1/3 in married student housing compared to off-campus), most of the time living off-campus is a fraction of on-campus costs (especially if a student can attend their program year round at the CC.  Some CC programs are specifically designed to be yr round.)  

Another approach is to wait until age 24 and attend as an independent.  Our Aspie went back to school this fall and qualified for Pell b/c his personal income is so low.  His Pell grants covered his full CC tuition.

[Kuovonne]

4 hours ago, HeighHo said:

....do not waste high school time with multiple study halls or unchallenging or frivolous (Lifeguard and first aid cert instead of AP comps sci for example) coursework

While I agree with most of HeighHo’s post, these suggestions gave me pause. Lifeguarding and first aid certification can lead to part time jobs while still in high school. Lifeguarding is a great summer job. First aid certification can make it easier to get babysitting jobs. Having study hall might make it possible for a student to take an AP class while holding a part time job. Having a part time job in high school will help students get a better understanding of how quickly money can disappear and how hard one has to work to earn money. Plus, money from a job in high school will mean that the student will have to take out less debt in college.

[8filltheheart]

9 minutes ago, Kuovonne said:

While I agree with most of HeighHo’s post, these suggestions gave me pause. Lifeguarding and first aid certification can lead to part time jobs while still in high school. Lifeguarding is a great summer job. First aid certification can make it easier to get babysitting jobs. Having study hall might make it possible for a student to take an AP class while holding a part time job. Having a part time job in high school will help students get a better understanding of how quickly money can disappear and how hard one has to work to earn money. Plus, money from a job in high school will mean that the student will have to take out less debt in college.

Except she didn't state the certifications were frivolous.  She stated that taking them in school in place of academic courses is a poor choice.  I agree.  Students can get both (especially first aid/CPR) outside of school and take academic courses instead.

ETA: FWIW, if a student can get a scholarship, they will make WAYYYYYY more $$ in scholarships than any job they can hope to hold as a high school student.  (

Edited June 20, 2019 by 8FillTheHeart

[BlsdMama]

On 6/20/2019 at 11:30 AM, happysmileylady said:

As to the limits of what's borrowed.....I think it's important to be clear that just because that's the BORROW limit, that's not necessarily what a student will graduate with.  With loans that accumulate interest while in school, it's possible to have borrowed less than the limit, but still graduate with loan balances that go beyond that limit.  This is especially true for those who take several years to complete school.  It ultimately took DH NINE years to get his BS.  He started out going part time, and some of his math classes were the basic remedial classes that he felt were necessary to refresh himself since he had been out of school for like 12 or so years.  And then add in a couple of classes failed and retaken, the years add up.  

Now, however, loan limits are adjusted to part time, 3/4 time, and full time status and there are overall undergrad limits for dependent status students and independent status students.

When DH and I started in school, I have no idea if there were caps or not, but DH graduated with about $60k in loans - for his bachelors!  It took joining the military to get rid of all that.  

The current caps are really quite reasonable, assuming a state college.  DS is a junior.  He's capped at $7500.  Tuition is around $10k.  It leaves him needing to work to pay for his apartment/utilities, etc.  I think it's a positive thing.  However, I don't know what people do when their instate universities have high tuition.  I imagine private loans play a part here and they are problematic in and of themselves.

[8filltheheart]

1 minute ago, happysmileylady said:

I was more talking about interest accumulation.  If it takes someone 6, 7, 9, or more years, that 6, 7, 9 or more years of interest accumulating.  So, even if we say the loan cap is say $5k per year (I have no idea what the cap is,) and let’s say someone borrows to that cap the first year.  If it takes them 8 years to finish their $5k in debt from that first year is no longer $5k.  It could be $6k or $7k or whatever depending on whatever the interest rate is.    

That's what loans do.  They charge interest.  Buy a house with a loan and you pay significantly more for the house than the purchase price.  Same with a car loan.  Same with credit cards.  Not sure why college loans are expected to be any different.  You borrow $$; you pay interest.  Your defer; your interest grows.  Pay minimal amts; you pay more.  

[SKL]

1 minute ago, happysmileylady said:

I understand that.  I don't expect college loans to be any different.  

I was explaining that just because a student is limited on how much they can borrow, that doesn't mean they are limited on how much debt they end up graduating with.  I don't know what the cap is, but a student can end up graduating with substantially more debt than that borrow limit because of interest, interest rates, and how long they end up letting those loans sit around gathering interest while they are in school.  

But a fairly generous amount of loans are available interest-free during school & for some months after graduation.

[ktgrok]

I hate hearing how people make it sound like only an irresponsible idiot would have this problem. Or a slacker with a sense of entitlement. Remember, there was a time not that long ago where every student was being told by guidance counselors, college admissions, the news, etc that "investing in your education" is a great thing, and that student loans are super affordable and well worth it. My husband graduated with 80,000 in loans, some subsidized some not, from a college that was specifically technical and now out of business. He did get a great education that involved people actually in the field teaching the classes which has helped him tremendously. No public schools offered that degree in our area, and he couldn't move do to taking care of his mother with mental and physical health issues, keeping an eye on his 10 years younger brother, etc. He did not live extravagantly - he lived with roommates and for a time on a couch. He eventually did buy a 10 yr old used small pick up truck. He ate lots of ramen and cheap cuts of meat and tuna. He did not have anyone around him capable of advising him financially. He'd had a GED from dropping out to work to pay the bills for his mom/brother, and knew he needed more. He worked full time while going to school just to pay rent, put some money in savings for emergency fund, etc. (fairly high cost of living area). By the time he graduated he had over 100,000 due. After graduating he did put the loan in deferment or forebearance for a while, I forget which, because he couldn't make payments, and yes, more interest accrued. The student loans, even income dependent payments, hang over his/our life like a dark cloud. We were only able to borrow a house because of a paperwork mistake - technically we didn't qualify with that much debt. It is about equal to our mortgage/homeowners insurance/property tax bill every month. He has turned down amazing jobs because of lack of security, and knowing he needs to pay that bill. It never goes away, and it terrifies him that he could get sick/disabled and then what? Can't be discharged for bankruptcy, so I'd be burdened trying to pay it. He often says he would have to die to get rid of it. To the point a few times the ONLy reason I knew he wasn't going to kill himself was that life insurance won't pay out on suicide...if it did I think he might have done it just to get rid of that debt for my sake. Seriously. 

That's the situation a LOT of people are in. In hindsight, knowing what we know now, yeah, he'd make a different choice. At the time, he had no idea that the country would go into recession the year he graduated. (2008). Also, as a man in his twenties, he was invincible, the fear of disability in the future or even the idea of marriage/4 kids/mortgage, etc wasn't on his mind, and I don't think that's unusual given he had no father figure in his life, his mom was a narcissist basket case with zero financial understanding, etc. If he had to do it again he'd have gone to the public university and gotten a different degree in a related field, then taken certification courses to try to get into the field he is in now. He IS meant to be doing what he does, there is no doubt. He's amazing at it, and starts a new position next week that will FInALLy give us breathing room on the student debt. Hopefully....actually i can't say that for certain, because every time before, if he got a raise it ended up bumping him into a different payment plan that would be way more than the raise itself. (so if he got a 200 dollar a month paycheck boost the payments would go up 600 dollars a month, and then we'd end up in forebearance again for a while, which increased the total amount owed..never end cycle). Oh, and every time he calls to try to work with the loan people and find out options they change the story, or mess things up, etc. They certainly are not able to help him figure out how to better pay them off. They sound like students themselves, just working at a call center reading from a script. 

So yeah. People with limited info did the best they could with the info they had. They listened to the "experts" counseling them. In my husbands case he also listened too much to for profit college financial people who were happy to throw his future security under the bus to keep him attending classes. And with no one else telling him differently, he did it. (he did have a co-signor, his grandmother, who is now deceased). 

My story was different...I had some minor loans at a public college, many years before him so MUCH lower tuition costs both due to public/private and due to being before the cost of tuition in general skyrocketed. I had family to counsel me, and moreover, had family willing to scrimp and save to pay for some of my expenses. I ended up owing I think 2 grand, which I paid off at 50 to 75 dollars a month. Totally doable. My husband's payments have averaged 800-1,000 a month, when you take into account the 18 different loans spread out over public and private. That's crippling, a major source of my husband's mental health issues, probably a huge source of his physical health issues because of the stress, and why he has not done what he wants to do, a nd would be GREAT at, and opened his own cyber security consulting company. It is also why he works TWO jobs, one part time. That way he has a fall back job if something happens to his main job.

The plan is to settle into the new job and then talk to a financial counselor about options, which of course we will have to pay for (again, something many can't do) in order to figure out how to consolidate or pay them off more efficiently. Again, the people handling the loans do NOT know how to two that, and give us the run around. It's exhausting. 

As for how to avoid it? Our children will go to public school no matter what. No private school. They will likely to do community college first - our state has dual enrollment for free, plus if you get an AA/AS from a community college you are pretty much guaranteed admission to the state 4 year colleges to finish up. They won't GO to college until/unless they want to and are ready (my 19 year old has not done school for the past year, he MAY do it in the fall, at the community college). We also are blessed in that although his Aspergers is a burden for him, the stage gives kids on the spectrum a scholarship for K-12 that can be used for homeschooling, private school tuition, or banked toward college (they can't be in public school - they basically get a portion of the money the state would spend on schooling them to use in another manner, since they are not using up public school seats/resources). We were frugal with it, and he has enough to basically cover his tuition for a 4 year degree. An=d we live near enough to commute to school. Or if he wants to live on campus we have some money in a college fund, that we stuck there when DH inherited some money, but it isn't much. Worst case he takes out small loans to cover a dorm room. The younger kids have more time for that small amount of college money to accrue interest in the bank, plus younger DS now qualified for the same scholarship as older DS, with his PANDAS diagnosis (small chance hs is also on the spectrum but we need to wait until he's older to be sure....long story). We will also be frugal with it, but the state could discontinue it before he graduates so who knows. 

[SKL]

ktgrok, I don't want to quote your whole comment, but I would just say - if your dh had not gone beyond his GED, how different would his life be?  Most people with no college are living hand to mouth too.  The difference is that for many with an investment in higher education, that is temporary, and once the debt is paid off, then things get a lot better.  Sometimes it is hard to see that when it takes so long to pay it off.  But we routinely take on 30 year house mortgages, and most people think that's fine.  Having paid off my debt after years of living lean, I do believe it's worth it for most people, assuming their field is a generally lucrative one.

[Condessa]

Well, one loan for dh’s law school was held by a bank that, when we paid more than the minimum, applied the extra towards future interest. I saw they had done this, and after a very long, complicated information chase by phone, learned that we had to send it in as a separate check with “Principal Only” written on it to have them apply it to the principal.  Add to that interest compounding from his time in school and a few unemployed (deferred) years coming out of school into the recession, and if I hadn’t been paying very close attention to our loan statements, we totally could have wound up with something like the numbers in the OP.

Edited June 27, 2019 by Michelle Conde

[Lori D.]

22 hours ago, Michelle Conde said:

Well, one loan for dh’s law school was held by a bank that, when we paid more than the minimum, applied the extra towards future interest. I saw they had done this, and after a very long, complicated information chase by phone, learned that we had to send it in as a separate check with “Principal Only” written on it to have them apply it to the principal.  Add to that interest compounding from his time in school and a few unemployed (deferred) years coming out of school into the recession, and if I hadn’t been paying very close attention to our loan statements, we totally could have wound up with something like the numbers in the OP.

Thanks for this great reminder. MANY MANY bank loans and mortgages do this, or at least used to do this -- very probably it is "standard policy" for many banks. When we were paying extra on the principle of the mortgage of our first house (pre-2000), we had to write a separate check AND specifically state on each check that it was to be applied toward the PRINCIPLE ONLY.

Edited June 28, 2019 by Lori D.

[Condessa]

1 hour ago, Ktgrok said:

  The plan is to settle into the new job and then talk to a financial counselor about options, which of course we will have to pay for (again, something many can't do) in order to figure out how to consolidate or pay them off more efficiently. Again, the people handling the loans do NOT know how to two that, and give us the run around. It's exhausting. 

 

We found that the best rates we could find for consolidating dh’s law school loans were with SoFi.com.  They also were very easy to work with, unlike some of the other lenders we dealt with.  And it would be a good opportunity to get off the income-dependent payment plan so you can know what is coming and plan accordingly.  As a bonus, if you go there from the link on mrmoneymustache.com, you will get $300 which you can apply to your principal.

 I’m sorry if this is overstepping, as you didn’t ask for advice, but have you considered throwing all the inheritance money you set aside for the kids’ college at the principal?  Future interest you will not have to pay on paid-off principal debt is the surest return on any investment in existence, far more than interest that college savings might earn.

Edited June 27, 2019 by Michelle Conde

[ktgrok]

2 hours ago, SKL said:

ktgrok, I don't want to quote your whole comment, but I would just say - if your dh had not gone beyond his GED, how different would his life be?  Most people with no college are living hand to mouth too.  The difference is that for many with an investment in higher education, that is temporary, and once the debt is paid off, then things get a lot better.  Sometimes it is hard to see that when it takes so long to pay it off.  But we routinely take on 30 year house mortgages, and most people think that's fine.  Having paid off my debt after years of living lean, I do believe it's worth it for most people, assuming their field is a generally lucrative one.

Oh we absolutely do not regret that he went and got a degree. In fact he’s getting a masters now, but his employer has paid for most of it. But he could have gotten a slightly different degree and that would also have been lucrative, if he had had the knowledge and contacts to still get into this field. Public schools offer General computer science degrees and perhaps he still could’ve gotten where he is today with that. We don’t know. His field is very much a its who you know not what you know type of thing in some ways. He made a lot of contacts. We don’t regret him going to college, we regret the impact his debt has had on his health and life.

53 minutes ago, Michelle Conde said:

 

We found that the best rates we could find for consolidating dh’s law school loans were with SoFi.com.  They also were very easy to work with, unlike some of the other lenders we dealt with.  And it would be a good opportunity to get off the income-dependent payment plan so you can know what is coming and plan accordingly.  As a bonus, if you go there from the link on mrmoneymustache.com, you will get $300 which you can apply to your principal.

 I’m sorry if this is overstepping, as you didn’t ask for advice, but have you considered throwing all the inheritance money you set aside for the kids’ college at the principal?  Future interest you will not have to pay on paid-off principal debt is the surest return on any investment in existence, far more than interest that college savings might earn.

It is my understanding that even if we threw that money at his student loan debt, we still would be making payments on the student loan debt anyway, when the kids are in school. Or until very soon before they are. So it wouldn’t help us pay for their college, if you know what I mean. If you’re going to be paid until you were dead anyway, going a little less when you die isn’t very helpful.

[ktgrok]

An interesting news related to this, recently I got a letter regarding my ex-husband student loans. We have been divorced for 15 years. They said if I didn’t provide a death certificate they would come after me for what he still owed.

[8filltheheart]

29 minutes ago, Ktgrok said:

An interesting news related to this, recently I got a letter regarding my ex-husband student loans. We have been divorced for 15 years. They said if I didn’t provide a death certificate they would come after me for what he still owed.

Did you cosign for those loans?

[vonfirmath]

2 hours ago, Lori D. said:

Thanks for this great reminder. MANY MANY bank loans and mortgages do this -- very probably it is "standard policy" for many banks. When we were paying extra on the principle of our house mortgage, we had to write a separate check AND specifically state on each check that it was to be applied toward the PRINCIPLE ONLY.

 

Woah. I've never seen a mortgage do this.

I definitely was affected by this on my student loan because they were not giving me detailed statements. I ended up paying off the student loan using a personal loan then paying that down. But I was paying more than my loan amount for YEARS and being baffled my total was not decreasing like I expected. I never figured out exactly what happened but I wouldn't be surprised they were pulling shenanigans like this because when I tried to get statements of where my money was being applied htey'd drag their feet at getting to me, and when I got it it would be 6 months out of date!

[ktgrok]

1 hour ago, 8FillTheHeart said:

Did you cosign for those loans?

no. 

[Lori D.]

@Garga -- getting back to your questions in your original post: ways to help avoid those debt horror stories include:

- don't take out ANY loans if possible
- before taking out any loans, be sure you understand the concept of compound interest -- that interest accrues not only on the principle (the amount of the loan) but ALSO on the interest that accrues on that principle; also understand about different interest rates (% of the loan amount owed in addition to the principle when paying back the loan), but especially how often that interest is compounded (added in to the total amount of money owed for paying back) -- interest can be compounded annually, semi-annually, or even monthly (credit cards, e.g.)
- if you do need any loans, try to limit the amount of debt as much as possible; example: just because the college *offers* a financial aid package that includes a larger amount of loan than needed, or several types of loans of different amounts, that does NOT mean you must accept all of the loans; -you may accept or refuse any part -- or all -- of the college's offered financial aid package
- learn about the different types of Federal student loans, what the maximum amount of $$ is for each type of loan, how much interest each type of loan accrues, when each type starts to accrue interest, and especially -- understand when one type of loan (SUBSIDIZED) might transform into an UNSUBSIDIZED loan and begin accruing interest immediately (see the chart partway down in the Federal student loans article)
- try to limit debt to Federal SUBSIDIZED student loans first; these loans do not start to accrue interest until 6 months after leaving school (with a few exceptions (see the chart partway down in the Federal student loans article)
- be aware: SUBSIDIZED loans enter the repayment stage 6 months after a student stops school -- whether that is due to having graduated, or whether the student is just taking a semester off
- parents and students should have specific, direct conversations in ADVANCE of college about whether or not parents are ABLE (or willing) to take on college debt in the form of Parent Plus loans, or personal/bank loans
- students AND parents should avoid personal/bank loans to finance college, as these loans tend to have high interest rates, and interest begins accruing the moment you sign
- stay informed -- carefully read through all details before signing for any loan/financial aid package, and then carefully examine the monthly loan statements to make sure everything is correct; immediately contact the lender if you do not understand something, so that months/years of interest do not accrue and make the amount of repayment balloon unexpectedly


Related to reducing/avoiding debt is the concept of REDUCING COLLEGE COSTS as much as possible. Examples:

- look for lower-cost alternatives to living on campus (live at home, live with a relative, be a dorm RA if they offer a stipend or lower dorm fee, stay at an assisted living home in exchange for volunteering hours each week interacting with 
- consider changing expectations and accepting a school that is lower-cost or offers better aid rather than getting stuck on the idea of an expensive "dream school"
- reduce time at college by knocking out some of college while in high school -- dual enrollment (some areas have FREE tuition for dual enrollment), CLEP tests, AP tests
- consider the 2x2 option -- 2 years at the local community college and live at home, then transfer for the last 2 years to a university with an articulation agreement
- while in high school/college consider working part time for a company that pays for some of college tuition
- consider work-for-tuition options (company pays for some/all of tuition in exchange for you working for them for 2-4 years upon graduation) -- example: Dept. of Defense SMART scholarships, or a hospital with a tuition reimbursement program

See more ideas for cutting college costs or alternatives for paying for college in the past threads linked on PAGE 3 of the College Motherlode thread pinned at the top of the College Board.

Good luck! Warmest regards, Lori D.
 

ETA -- Love to see more tips, info and thoughts from other people about college loans (and loans in general)!

Edited June 28, 2019 by Lori D.

[ktgrok]

3 hours ago, HeighHo said:

So...are you saying you two can't carry enough life insurance to clear the student loan debt in the event that either or both of you pass before its paid off?  And you are insecure because the inheritance/savings that was invested isn't enough to get thru a period of short term disability or an initial long term disability period ? Is the debt from a lender that doesn't discharge for permanent disability?

The opposite, Im saying that we do have enough life insurance, so it is a good thing that life insurance won't pay out for suicide or I think there were a few times it might have crossed his mind that if he just killed himself I'd be debt free. 

And I don't know about loans being discharged due to disability - my ex was on disability for over a decade and they still came after me when he died. I just looked it up, only a fe types of student loans can be discharged for permanent disability. 

Edited June 28, 2019 by Ktgrok

[Penguin]

While it is sound advice to suggest subsidized loans instead of unsubsidized, the subsidized federal government loans are only available for (1) undergrads and (2) those with financial need.

For grad school, or a student without need, only unsubsidized loans are available.

Also, if you want to keep current on the interest while in school, be careful with the timing of the payments. You have to wait until 120 days after the disbursement, otherwise the payment goes toward the principal instead of the interest.

This is my understanding, but I am happy to be corrected if I am wrong.

 

[lewelma]

.

Edited June 29, 2019 by lewelma

[ktgrok]

6 hours ago, HeighHo said:

 

Why would you have debt from any spouses student loans? Did you co-sign the original loan or a refi during the marriage, taking on liability?  Were you married and living in a community property state when the spouse took out the loan?    I understand the deceased's creditors would take you to court if you had received assets from the estate before the debts were paid or it was a Medicaid Divorce. 

Fraud calls are high, its very easy to see who knows someone, call and try to get money out of them.  I have had five in the last three years...all authentic sounding.  Because I keep good records, know the terms of the law on my medical bills and bail,  and am in touch with relatives, I knew they were fraudulent.  I invited each one to do what they wanted to do, take me to court.  In one case, His Honor had already ruled...I told the caller I'd love to meet them in court, bring on that lawsuit they threatened as His Honor would love to talk to them.  

It was a letter, not a call, and they were asking for the death certificate, not for money (unless I couldn't prove he was dead). He took out some of the loans while we were married, which made them a joint debt I guess, although I think that our divorce decree says that they were his only, so I could have fought it (at expense to myself). In Florida at least, most debt taken on, or assets received while married belong to both spouses. I'm assuming that is why they contacted me. Again, pretty sure legally, due to divorce decree, they can't do anything but it would have been a hassle. 

Edited - oh, I get what you mean, my husband! No, his debt would die with him, but if he committed suicide the life insurance wouldn't pay out, so I'd be stuck with the mortgage, other bills, etc etc trying to raise the kids on my own. It's not about the life insurance covering his student loan debt, it's about me being able to live and take care of the kids. I'd need that life insurance. So yeah, if he killed himself the student debt would go away, but the life insurance would be toast too, which is at least partially what kept him from truly contemplating it at his bad points. 

Edited June 29, 2019 by Ktgrok

[TarynB]

On 6/28/2019 at 11:12 AM, HeighHo said:

Something to consider:  student take first job in an area where he can maximize the after tax/after housing income so that he can pay down the loan as soon as possible, living frugally as while in college. 

 

Yes! This is the key. DH and I both had student loan debt. First-generation college students, no help from family, poor advice from all directions. We made it our #1 priority to get that debt out of our lives. We continued to live frugally like we did in college until it was gone! We both worked at two jobs for a time - our full-time jobs plus side gigs. We delayed starting our family, had fewer children than we originally wanted, still live in our starter house, both drive older cars, I didn't become a SAHM (which I see as a luxury when the family has debt) until the debt was gone, only cheap stay-cations, rarely eat out, few "extras". It isn't popular to do these things and we're not "allowed" to talk about them. Everyone these days seems to have a sad story and justifications for why they are different.

We simply decided we had to make certain life choices to pay off our debt. We're changing our family tree to benefit our son and the future generations of our family. We're frugal, but also happy, content, fulfilled, etc., and still have a better lifestyle than our high school peers who didn't go to college. So I think the sacrifices have been worth it.

14 hours ago, HeighHo said:

 

Why would you have debt from any spouses student loans? Did you co-sign the original loan or a refi during the marriage, taking on liability?  Were you married and living in a community property state when the spouse took out the loan?    I understand the deceased's creditors would take you to court if you had received assets from the estate before the debts were paid or it was a Medicaid Divorce. 

Fraud calls are high, its very easy to see who knows someone, call and try to get money out of them.  I have had five in the last three years...all authentic sounding.  Because I keep good records, know the terms of the law on my medical bills and bail,  and am in touch with relatives, I knew they were fraudulent.  I invited each one to do what they wanted to do, take me to court.  In one case, His Honor had already ruled...I told the caller I'd love to meet them in court, bring on that lawsuit they threatened as His Honor would love to talk to them.  

 

I think she said she didn't co-sign. I think saying the lender "came after" her is kind of too strong. They simply sent a letter; they're just fishing. It might even be a third-party debt collector just seeing if they can bully an unsuspecting or ill-informed relative (or former relative) into paying, all while knowing they have no legal basis for it. Unfortunately it happens.

Edited June 30, 2019 by TarynB

[zoo_keeper]

On 6/28/2019 at 11:12 AM, HeighHo said:

Second most frequent: retire if eligible for pension and had worked under SS, do any deferred medical that makes your under 19 eligible for SSDI .  Spouse works min wage for medical benefits if you don't have retiree medical and you need income.  Go back to work full time when student over 19 or grads (depending on EFC and situation). 

This really sits wrong with me... So make an able-bodied parent look really poor on paper and then resume working after you no longer need to look poor?  What in inefficient allocation of financial aid and the labor force as it redirects (a) financial aid from those who may truly need to to those who are choosing to appear as if they need it and (b) minimum wage jobs from unskilled workers who may truly need them to folks who are apparently qualified enough for a higher paying job and thus don't need it.

[JoJosMom]

22 hours ago, Ktgrok said:

The opposite, Im saying that we do have enough life insurance, so it is a good thing that life insurance won't pay out for suicide or I think there were a few times it might have crossed his mind that if he just killed himself I'd be debt free. 

And I don't know about loans being discharged due to disability - my ex was on disability for over a decade and they still came after me when he died. I just looked it up, only a fe types of student loans can be discharged for permanent disability. 

 

This is tangential to the thread, but life insurance generally DOES pay out for suicide after the first two years of the policy. Although I certainly wouldn't share that information with your husband if that's a concern, and you should check with your policy to make certain. God forbid something like that should happen, but with small children you do need to have the information.

[SKL]

As for whether financial aid is fair, to me, it's the bigger picture.  Partly because of how financial aid works, the unsubsidized price of a higher education is exorbitant for all but the richy rich.  Those of us whose kids will not qualify for aid because of our "on paper" income are frankly getting screwed.  I'm glad that folks with modest and low incomes can go to school, of course, but something is wrong somewhere.  While I would not defraud the system, I am likely to spend all of my "retirement" savings sending my kids to "relatively" low-cost state universities (unless they miraculously win scholarships).  State universities are of course tax-subsidized as well.  But since I am a payer of mega taxes, I don't feel wrong getting some of that benefit.

(And my kids will be considered to be among the "privileged" group whose families pay it all.  As if I have a choice [other than saying go to hell].)

I'm not sure how many people fall into that area between "qualifies for enough aid to bridge the funding gap" and "rich enough to pay it all out of pocket and still live well."  I assume it varies by location.