The Truth About Student Loans

[KeithDoxen]

Also, once a private student loan has entered "default" status, the lender can continue to report is as a charge-off or default until every last penny has been repaid thereby torpedoing the borrower's chances of buying a house, buying a car at a decent APR, passing the bonding/security clearance requirements for certain jobs, and even renting an apartment in a city with a "tight" rental market.

I agree with you on private student loans, but I'm not so sure this is correct. Can the lenders really "re-age" the debt on the borrower's credit report? I thought re-aging was a no-no for creditors. Sure, if the borrower defaults, the lender will ding the borrower's credit report with a charge-off on those private loans in question, but that will fall off the credit report in 7 years. So I don't see how that's any worse than defaulting on a credit card, though you seem to suggest that this defaulted student loan will remain on the credit report forever.

[treehugger1]

Am I kidding in terms of debt forgiveness in BK for private loans? Nope. There is no logic in "government backed loans offer more opportunity" when it comes to one being able to discharge their loans in a BK 7. One is either bankrupt, or one is not. Having special reduced payment programs doesn't make one any less bankrupt. The government should not get a bankruptcy break.

[GoingDown]

I would love to see the law changed to allow all student loans-- both federal and private ones-- to be discharged in bankruptcy. But I doubt that is going to happen at any time in the near future.

For those with federal loans, the income contingent repayment plan offers a way to keep the loan out of default and have reasonable payments. While 20% is not quite as good as 15%, some people can't have any wage garnishments because their employer might fire them if they get their wages garnished. I know it's not supposed to happen, but it does happen sometimes. And the income contingent repayment plan stops it at just 20%. As long as they pay that amount, they don't have to worry about the feds seizing their checking accounts or their tax refunds, etc.

And in many cases, if your income is low and/or you have a big family, your monthly payment might be zero dollars per month. That's hard to beat.

The big problem comes at the end of the 25 years when you get slapped with a huge tax bill. I would say, plan ahead for it, and be prepared to make it through 3 intense years of IRS collection activities as you wait until you can discharge those taxes in bankruptcy. You have to file your return, see if you qualify for insolvency so you can exclude that 1099 from your income, and if that fails, be prepared for 3 years of hell as you wait out the IRS until you can file bankruptcy on those taxes.

[treehugger1]

And, the 25 years is really the weak point in the entire process. The current issue that I hear from CPAs and Chapter 13 attorneys is that a great deal of student loan debt belongs to baby boomers (their own education and parent plus loans) going back to the mid-80's. We are talking a LOT of money here. Ther is no way many of these folks will ever live 25 years. LOL.

When I speak to my Department of Ed. folks with regards to my "voluntary" garnishment, they tell me there are more and more folks willing to pay the 15% payroll garnishment expense. It is a pretty good deal if you know you will never ever pay off the loans, and you are a high wage earner.

Baby boomer student loan defaulters are going to rock this boat. There are almost NO deals that make sense for the boomers who are still holding 10's of thousands of previously consolidated GSL at interest rates of 9% - 15%. Some of this student loan debt goes back to the early 80's.

[memama]

After running the numbers on MY student loan debt (total of about $70k for a 4 year degree...ouch) our payments are going to be around $805/month. Um...hubby makes 50k/yr, we're a family of six, we're already bankrupt, and I can't find a job? That stinks If we go for the lower payment which we'll most likely qualify for, that will be about half that amount but take around 25 years to pay off. I hope to God that my math is incorrect because that puts me at around $90k in INTEREST over the life of the loan. Who can ever pay these stinking things off? I would have never gone to school had I known the true financials of it all...never, never, never. I would have waited until I could pay cash for school instead of taking out loans.

[keepsmiling]

Multi-page article starting on the front page of NY Times on Sunday.
Yeesh I hope ds' scholarship comes thru for fall. Even state college is mega bucks here.

[joshuagraham]

The bottom line is that there are many of us baby boomers who are going to retire collectively owing billions of dollars in guaranteed student loans. These will simply never be repaid.

But those folks will *eventually* go through probate, so if there is anything in cupboard, the creditors will get to confiscate it - and by that time, the magic of compound interest (and fees) will make the debt larger than any regular person's estate.

I wonder, though, if a 401K or IRA of a student debtor going to a beneficiary would be confiscated.

[joshuagraham]

After running the numbers on MY student loan debt (total of about $70k for a 4 year degree...ouch) our payments are going to be around $805/month. Um...hubby makes 50k/yr, we're a family of six, we're already bankrupt, and I can't find a job? That stinks

I am a bachelor without student loan (and without any other loan now thanks to my Chapter 7 .) I would flat out not get involved with someone if she had any major student loan debt. And I think there a lot of folks - men & women - who also take the same attitude, or a similar one (like not marrying until the student loan has been paid off.)

The life choices that unemployable, student debt laden young folks will have to make are amazing to think about. It's almost as if such folks should just give up and totally go on the dole, working under the table, etc.

[calhoun2011]

I hope I am on the correct "thread". Years ago I co-signed for my grandson - I know, "STUPID". However, he filed bankruptcy and then Sallie Mae advised me the loan is now in my name. I have since filed bankruptcy and have been discharged. Even tho the grandson filed, I have insisted and he has diligently made the Sallie Mae payments monthly. When I filed, Sallie Mae would no longer accept his payments - now that's really crazy on their part.

I have heard since you cannot discharge the loan in bankruptcy it should have never gone into my name and the student loan should have remained in his name all along. Can anyone advise?

[KeithDoxen]

If this is a private student loan, and it sounds like it is, the debt is not discharged. However, the lender has the right to automatically default the student loan when the borrower files for bankruptcy protection. This is due to a provision that private student loan companies would slip into the contracts for their loans. So when your grandson filed for bk, the loan automatically defaulted. That meant that the lender could go after your grandson as the borrower, or you as cosigner, or both of you. They probably chose to go after you because they figured you'd have more assets, given that you're older. Pretty much at this point anyone who signed or cosigned for the loan can be pursued by the lender.

[pamkev]

Saw this on the news another reason's why parents should never sign for student loan a lesson I learned to late.

http://www.cbsnews.com/video/watch/?id=7414070n&tag=mncol;lst;1

Mods if this is not allowed please delete

[treehugger1]

Since this post was revived, this is a response to joshua... In many states, probate for an estate does not change exemptions when it comes to governement guaranteed student loans. Where I live, retirement funds, beneficiaries of pensions, etc., remain exempt from seizure. This includes guaranteed student loans that defaulted.

The government can certainly take 15% of my social security for student loans, but I could give a sh*t less about my SS. And there is no benefit upon my demise.

Can the government seize or attach real assets in Oregon for failure to pay guaranteed student loans? Nope. And, I suspect no legislator in his/her right mind will change that. Since I have experience with political lobbying, I can say, nearly with certainty, changes to guaranteed student loan regulations related to default collections, would take forever to modify.

[mdabusufian]

I think student loans can help a student very much.

[Postbankrupt]

This is so unfair. Schools encourage students to take out the maximum amount and then once they graduate they cannot find the jobs to repay them. Congress needs to allow student loans to be discharged in bk. $1 trillion in student loan debt in this country-don't you think that's a problem???

[Reddrocket07]

If student loans could be discharged in my case, I'd file again. There is no way that the combined student loans of my wife and I will be repaid within our life time. Loan forgiveness is a joke as well. I qualified for loan forgiveness and was originally told that after payi for 10 years the remainder would be discharged, but this was subsequently capped at only forgiving 5% of my student loan.

I think it may end up being cheaper if I eventually allow my wages to be garnished for student loans. Has anyone seen this before or tried it?