Thinking About Taking out Student Loans For College? Think Again.

The cost of college is skyrocketing at astounding rates, and despite the state of the economy, post-secondary education is a booming business. According to Trends in College Pricing 2010 and Trends in Student Aid 2010, published by collegeboard.com, the average cost of college for public four year colleges is $7,605 per year, for in-state students and $11,990 per year for out-of-state students. Private four year colleges charge an average of $27,293 per year. This is the cost for tuition and does not include the costs for room and board, books, supplies, etc. To make matters worst, the amount of free federal financial aid has not increased in tandem with rising tuition costs and other college related expenses. There has even been proposals to reduce the maximum amount of Pell grants that students are eligible to receive. Due to these facts it is very tempting for students to look to student loans to make up for the gaps in financial aid and to cover the costs of their education. Indeed, student loan debt in the United States has already surpassed credit card indebtedness. Student loan debt in the U.S. is expected to go beyond the trillion dollar mark by 2012. Here are some facts that you might want to contemplate prior to signing on the dotted line for that student loan.

• Student loans are not dischargeable in bankruptcy. It does not matter whether you complete your degree program, find gainful employment after graduation, lose your job, or become disabled. The student loans must be repaid. Very few people are able to claim “undue hardship” in bankruptcy and get their student loans discharged. Of those who successfully had student loans discharged, it was due to very extreme circumstances, limiting the borrower’s ability and hope of ever repaying the loans.

• Repayment on federal Stafford loans starts six months after graduation or when the student drops below half-time enrollment. Will you have a job that pays enough money to make your monthly loan payments affordable? You may be eligible for a hardship deferral or forbearance. Unless you are still enrolled in school at least half-time, you are responsible for the interest that accrues during the deferral (for unsubsidized Stafford loans) or forbearance period.

• Massive student loan debt hampers your ability to do other important things in life like buying a home, funding a retirement account, start a business, or getting married and starting a family.

• Anyone who co-signs on a student loan is equally responsible for repayment of the loan. So, whenever the original borrower dies or defaults on a student loan, the lender can pursue the co-signer for repayment of the loan.

• Avoid private student loans like the plague. The repayment terms are often more stringent compared to the repayment terms of federal student loans. Like government backed student loans, private student loans are not dischargeable in bankruptcy. The interest rates and other fees are higher for private student loans than with federally backed student loans. At the present, private student loan lenders are not required to disclose all of their fees upfront.

If you ever default on a student loan, there are severe consequences, including wage garnishment, seizure of income tax refunds, seizure of bank accounts to offset the loan balance, garnishment of disability and social security checks, negative rating on credit report, negative impact on your ability to get a good job, exorbitant collections fees, and the list goes on. The bottom line is that it would be best to avoid taking out student loans or at least minimize the amount of student loan debt that you incur. If you choose to borrow money for your education, please don’t borrow more than you can reasonably repay. Never borrow money to fund a lifestyle (partying, new car, shopping sprees, etc.).

Sources:

http://www.collegeboard.com/student/pay/add-it-up/4494.html

http://economix.blogs.nytimes.com/2011/02/14/cutting-pell-grants/

http://studentaid.ed.gov/PORTALSWebApp/students/english/difficulty.jsp


Related posts:

Words of Caution For Anyone Thinking About Going to College


What Happens When you default on a student loan? Some of the Consequences of Student Loan Default


Is Going to College a Good Idea in a Bad Economy?


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