Saturday, 6 June 2020

6 Things They Don't Tell You About Student Loans

Student Loans

Everybody knows the obvious problems with student loan debt, according to the student debt clock, there are 1.75 trillion dollars in student loan debt. And that's just the flat amount owed at this time, that doesn't count the insane amounts of interest that people rack up as many end up paying twice as much as the original loan was worth. There are other things that they don't tell you about that are just as bad as the things that you commonly hear about, and these are important because knowing about these traps will save you a lot of time and money in the future. These are the things that I wish I knew 



1. The Default Rate Is Much Higher Than You Think

According to the government, the default rate on federal student loans is about 7%, but when you dig a little bit deeper into the data you find that, that 7% is only the student loans that were defaulted on during the first two years. And then another thing is that student loans that are being deferred are not counted into the data, now, student loans can be deferred for many different reasons but one of the main ones probably the most common one is because of financial hardship, and many of those borrowers will end up defaulting as soon as the student loans are due again, and because of this a lot of the data won't be available over the long term for many years to come. 

What is known is the default rates right now are much higher than they were in the past and it will take a long time for us to figure out just how much higher that is, so we do not know how high the default rate is now but what about say 30 years ago in the 90s, well, according to report by CBS News in the Education Department it's 20% to 30% for bachelor degrees. And over 40% for two-year degrees, and as expected for-profit schools are even worse than that at around 40% to 50%, and if 40% of people taking out loans back then when tuition was much lower than it is now or facing default rates, it's probably going to be over 50% for people taking them out now.


2. Student Loans Can Compound Extremely Fast If You Miss A Payment Or Default On Your Loan

A friend of mine could not get a job after graduating from college and so she ended up defaulting on her loan, after default, a collection agency owned her loan and instead of charging the 4% to 5% that it was before, they bumped up the interest rate to over 10%, long story short on one of the loans she ended up paying nearly double what it was originally worth because of this ridiculously high-interest rate, and this is not just my friend, reading some of the horror stories on sites like studentloanjustice.org is extremely illuminating. For instance, there is a story of a $40,000 undergraduate loan that ballooned to over $152,000, and this is because of various rescue programs such as forbearance, loan consolidation, payment deferrals, and loan rehabilitation.

When a student loan goes into default and ends up going into collections, they have the right to mark up the price of the interest on the loan by up to 25% of the principal and thinking back on this when I was a teenager and I was thinking about taking out loans, none of this was told to me, I mean, not a single person or any of the stuff that I read online told me that they could do this, and doing the research on this article for hours I scoured different government websites, as well as student websites looking for a warning about this and I, could not find anything concrete. Now, they do say that there are consequences for defaulting on your loans but there are no actual numbers mentioned, and hey, if I am wrong about this and you can find something out there please link it down in the comments and I will check it out.


3. Student Loans Usually Can't Be Discarded In Bankruptcy

I think a lot of people are aware of this one but the government basically made it almost impossible for student loans to be discharged in the case of bankruptcy. Unlike almost any other type of loan out there like a business loan or a mortgage on your house, you can get rid of it if things go south if your business goes down or for some reason you can't pay for the mortgage on your house. In very rare cases we're talking probably less than one percent of the time judges can't forgive student loans, if the person is like a quadriplegic and they lost like all four of their limbs and they can't make any money at all, they can forgive them, but if you choose to play the game of loans, you will always have to pay your debt.


4. Student loan Have Less Consumer Protection Law Than Other Types Of Loan 

If you do not pay your student loans the way they want you to, they can take you to court, they can garnish payments from your work, they can even take money out of your social security checks, they can seize disability payments and all of these things by the way they do not even need a court order to do. 

In many states, they can even take away your professional licenses like you would have if you were a doctor or a lawyer, which to me doesn't really make sense because that would obviously prevent you from being able to pay back your loan but, they do it anyways. And the fact they can do all these things to you means whatever business or collection agency that owns your loan basically they have a ton of leverage over you more leverage than they would have with any other type of debt, so for a moment imagining that you are some rich jerk on Wall Street in the Loan Servicing business, what type of loan would you want to take on in your business loans? loans that have consumer protection, low-interest rates, and people are able to get rid of them with bankruptcy, or loans that have almost none of those protections, you can't get rid of them in bankruptcy, they are guaranteed by the government and on top of that, they have ridiculously high-interest rates. Then if that was not sweet enough the cherry on top is that if they can't pay off those loans you can increase the interest rates as a way of punishing them.


5. Your Cosigner Or Parents Can Also Be Affected As Well

All that same treatment that I just talk about, If your parents co-sign your loan or you have somebody else that's a cosigner, all of those things can happen to them as well. And if for whatever reason god forbid something happened to you and you passed away, your parents whoever co-signed the loan would still have to pay it off, and this is especially bad for middle-class families, these are families where they don't make enough to be able to pay the full cost of college and so they do end up having to take out loans, however, they make enough to where they probably don't qualify for as many scholarships, and they still have to pay off those loans.


6. Middle Men

The number six thing that they don't ever talk about is the middlemen that are in the loan process, your student loans can be run through so many different middlemen that all take their cut, your loan can be originated by one agency, serviced by another, collected by another, sold to another, and guaranteed by yet another, and your loan can also be traded or sold and you don't really have much say in it. Now, these are supposed to be semi-governmental agencies, but what they are is cash cows and they are going to do everything in their power to drain you of every penny that you have. This whole system is so needlessly complicated that I'd have to write an entire article just to explain how it works.





Conclusion

If you do choose to go to college you need to make sure to think of it as an investment. Because if you are going to go deep in debt in order to get an education you need to make sure that that is going to lead to you getting into a good job or starting a really good career.

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