Private loans for students can become traps
Kara McGuire, Star Tribune
Issue date: 9/30/09 Section: News
"At least if you put your tuition on a credit card, it would be dischargeable in bankruptcy should you ever reach the unfortunate point of needing such relief," she testified. "Ironically, private loan creditors remain fully eligible for the bankruptcy protection that their borrowers are now denied," she added. Read the full testimony of Asher and others at judiciary.house.gov/hearings/ hear-090923-1.html.
These private loans also aren't included in any of the recent laws passed to make college more affordable, such as income-based repayment plans and loan forgiveness for certain altruistic occupations.
As the wheels slowly turn on Capitol Hill, what can graduates strapped with private loans do? Painfully little. "They are at the mercy of their lenders," Asher said.
You can call your lender to explore your options. Both Nelson, 49, and Fisher, 29, have loans with Student Loan Finance Corp. and postponed payment using forbearance or deferment. It was a temporary and pricey fix, because interest accrued on their loans during those periods. Since then, the only advice Nelson said she was given was to make her payments on time for the next 26 years. Fisher suffered near-fatal blood clots in her brain this summer and now is unemployed. When she called to ask for help, she said, she was told "you're out of options." A spokesman for South Dakota-based Student Loan Finance Corp. said he could not comment on specific borrowers' issues, but said the company always tries to work with borrowers having trouble repaying their loans.
Current students should make sure they exhaust their federal student loan options first. If private loans are necessary, research options at studentlendinganalytics.com and finaid.org. Make sure you are clear on how the interest rate is calculated and get your hands on the promissory note, or contract.
Calculate how much debt you can afford to repay. A Sallie Mae study found that 58 percent of families did not consider a student's expected starting salary when deciding how much to borrow. When asked about their estimated monthly loan payments, 23 percent of students had no idea and the rest quoted payments that didn't jibe with the total amount borrowed. If you realize you'll have trouble repaying, tough choices must follow. Should you work more, transfer to a different school, switch majors or live a more Spartan lifestyle?
Fisher, who lives in Bloomington and never has used her degree, wishes she had taken a year off between high school and college. At age 19, she said she "didn't fully understand" her loans. Her father urges relatives to think twice before cosigning a loan.
Nelson, of St. Louis Park, cleans houses and teaches fitness classes. She wishes she'd met with a financial adviser before taking on so much debt. If she could do it over again, she would also rethink her major.
"Check on the job outlook for what you're going to school for," Nelson said. "Art wasn't a good idea."
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ABOUT THE WRITER
Kara McGuire is a columnist for the Minneapolis Star Tribune. Readers may send her e-mail at kmcguire@startribune.com or follow her on Twitter at www.twitter.com/kablog.
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(c) 2009, Star Tribune (Minneapolis)
These private loans also aren't included in any of the recent laws passed to make college more affordable, such as income-based repayment plans and loan forgiveness for certain altruistic occupations.
As the wheels slowly turn on Capitol Hill, what can graduates strapped with private loans do? Painfully little. "They are at the mercy of their lenders," Asher said.
You can call your lender to explore your options. Both Nelson, 49, and Fisher, 29, have loans with Student Loan Finance Corp. and postponed payment using forbearance or deferment. It was a temporary and pricey fix, because interest accrued on their loans during those periods. Since then, the only advice Nelson said she was given was to make her payments on time for the next 26 years. Fisher suffered near-fatal blood clots in her brain this summer and now is unemployed. When she called to ask for help, she said, she was told "you're out of options." A spokesman for South Dakota-based Student Loan Finance Corp. said he could not comment on specific borrowers' issues, but said the company always tries to work with borrowers having trouble repaying their loans.
Current students should make sure they exhaust their federal student loan options first. If private loans are necessary, research options at studentlendinganalytics.com and finaid.org. Make sure you are clear on how the interest rate is calculated and get your hands on the promissory note, or contract.
Calculate how much debt you can afford to repay. A Sallie Mae study found that 58 percent of families did not consider a student's expected starting salary when deciding how much to borrow. When asked about their estimated monthly loan payments, 23 percent of students had no idea and the rest quoted payments that didn't jibe with the total amount borrowed. If you realize you'll have trouble repaying, tough choices must follow. Should you work more, transfer to a different school, switch majors or live a more Spartan lifestyle?
Fisher, who lives in Bloomington and never has used her degree, wishes she had taken a year off between high school and college. At age 19, she said she "didn't fully understand" her loans. Her father urges relatives to think twice before cosigning a loan.
Nelson, of St. Louis Park, cleans houses and teaches fitness classes. She wishes she'd met with a financial adviser before taking on so much debt. If she could do it over again, she would also rethink her major.
"Check on the job outlook for what you're going to school for," Nelson said. "Art wasn't a good idea."
---
ABOUT THE WRITER
Kara McGuire is a columnist for the Minneapolis Star Tribune. Readers may send her e-mail at kmcguire@startribune.com or follow her on Twitter at www.twitter.com/kablog.
---
(c) 2009, Star Tribune (Minneapolis)
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