Heavy Student Loans Put a Damper on Family Life - $100,000

By Zac Bissonnette
6/22/2010

When Beth Pintal graduated with a master's degree in library science from the University of Pittsburgh, where she'd also earned her bachelor's degree, the 43-year-old thought that she would have a great job to look forward to. She never expected that a tough job market would make her $40,000 in student loan debt an unmanageable burden.

But it did. Now married with a 4-year-old daughter at home, she has watched as interest and penalties have caused her debt load to balloon to $100,000 -- and while her student loan obligations have soared, the amount of time she is able to spend with her daughter has dwindled.
"I don't see my daughter very much," she says, noting that she works eight hours most days and can't take Saturdays off. "I'd love to invest the time with my daughter. I only see her about three hours per day. If I didn't have these student loans, I would be able to work less and spend more time at home."

She's also worried about the impact the debt has on her home life. "Kids pick up when you're under stress, and it's not something you can explain to a 4-year-old. She just wants to know why mama's so upset and why don't I get to see mama very much."

This is not an idle point, nor is at a cherry-picked anecdote I pulled out because I think student loans are evil -- although I do think that. No, this is a pretty common scenario.

A 2002 survey conducted by Nellie Mae -- a subsidiary of Sallie Mae, hardly an anti-student loan propagandist -- found that 21% of student borrowers had delayed having children because of their loans, up from 12% in 1987. It also found that 14% delayed getting married because of their student debt obligations.

So here's my plea to families who are considering students loans as a means of financing education: Don't paint yourself into a corner by taking on long-term debt obligations that could force you to make life choices you don't want to a few years down the road. Recognize that many dreams -- from getting married to having kids to starting a business to working for a nonprofit -- can be put out of reach by excessive debt loads. College should be about preparing a flexible foundation that will allow you to build the life you dream of. It's hard to build dreams on a foundation of debt.

If you can't afford to pay for your child's chosen school without student loans, look at cheaper alternatives. The evidence that your child will benefit in any long-term way from going to one school instead of another is weak. The evidence that he'll benefit from graduating debt-free is really, really strong.

Your grandchildren just might thank you when mom or dad's debt-free education means they can spend more time with their parents.

http://www.dailyfinance.com/story/student-loans-stay-at-home-moms/19521490/

Student loans can be difficult to repay - Working 2 Jobs as a Lawyer

By Gertha Coffee

June 22, 2010

The Atlanta Journal-Constitution

Twice a week, lawyer Jessica Youngs leaves her Buckhead office and heads to Chamblee, where she changes from business attire into a swimsuit and spends a couple of hours teaching kids to swim. On Saturday mornings, Youngs, 24, teaches swimming for four more hours. Saturday afternoons and evenings, she spends another four-to-six hours working as a lifeguard. Sundays bring no rest, for she is back at the pool, working 9-to-12 hours as a lifeguard.

While it’s fun, “I don’t like being in the water so much,” said Youngs, an instructor at Dynamo Swim School.

But facing $25,000 in student loan payments and another $22,000 in school-related debt -- including a credit card and personal loans from family -- Youngs is at the pool to keep her head above water.

Her situation is hardly unusual. Many students use loans to finance college and repaying them can be a challenge. Two-thirds of college students borrow money for their education, graduating with an average debt of $23,200, according to the Project on Student Debt, an initiative of the nonprofit Institute for College Access and Success.

The high unemployment rate left many students graduating this spring without pending jobs but with hefty student loan debt. Some will have their first payments come due as early as July, if they don’t get a forbearance, deferring payment. When they can find work, some are working two and even three jobs to cover their loans.

One-third of Youngs' income goes to household expenses for the Buckhead apartment she shares with boyfriend Alp Kirmizioglu, a civil engineer. The rest of her salary goes to cover her student loans and other college-related debt, health insurance and auto insurance. A litigation attorney with Mark V. Spix P.C., Youngs has worked seven days a week since early May and will continue to do so until the end of September, when the lifeguard duties end.

Youngs came to Dynamo to find Lauren Lamb in the same boat. Lamb has a master’s in sports administration and is working seven days a week in three different jobs. The Florida State graduate earned her postgraduate degree last summer from Georgia State and owes about $15,000 in student loans.

Normally, Lamb said she works two jobs. She is a site director at Dynamo but also works part time as a sales associate for Bath & Body Works. Because it’s summer, she picked up a third job coaching a swim team.

“I can live on the salary from my main job,” said Lamb, 24, who leases a Buckhead condo from friends. “Once the student loans kicked in, I said I need to do something else.”

Her loan payments amount to $150 a month, she said, and her parents had planned to pay them off, until "the recession cost [her father] his job.”

Lots of her co-workers hold down two jobs, Lamb said. Some friends have more than $100,000 in loans and are worried about repaying the money.

“If you find something you want to do, I would definitely say get a loan,” she said. “But watch how much you get.”

According to the U.S. Education Department, federal student loan disbursements in the 2008-09 academic year rose 25 percent over the previous year, to $75.1 billion. The amount has long been on the rise, experts said, but has grown dramatically recently because of the weak economy.

“Obviously, people are going to go to college and it’s expensive," said Paul Golden, spokesman for the nonprofit National Endowment for Financial Education. "But getting a higher degree doesn’t have a downside. It’s an investment in what you do.”

A heavy debt load can delay a person’s ability to leave home, buy a house, purchase a car or even marry and start a family, experts said. Student loans can’t be discharged in bankruptcy.

Some people have no choice but to defer because they have no income, said Rodney Tullie, a certified credit counselor with CredAbility in Atlanta, formerly Consumer Credit Counseling Service.

He has counseled some clients who've left college with $50,000 to $100,000 in student loans. He recalled one person who had more than $100,000 in student loans, but had failed to earn a degree and had no job.

“He was going into the Air Force, which would give him a solid stream of income to help service that debt,” said Tullie.

Students need to look at all options to finance their education, Tullie said, even before they even start college.

“If you are looking at a career making $25,000-to-$30,000 a year and you’re going to have $70,000 in student loans, you need to look at a different school,” he said.

Scholarships covered Youngs’ undergraduate degree from Eastern Illinois University. She entered law school at age 19 at the University of Illinois, footing the bill largely through federal student loans and credit cards. She graduated in May 2008 and is licensed to practice law in Illinois and Georgia.

“My first job out of law school was in Illinois and that firm ended up dissolving. I had all those loans and no income,” said Youngs. She moved to Atlanta in December 2008 and started working for Mark Spix two months later.

When her Illinois firm dissolved, her parents chipped in to pay off one of her three credit cards. She has since managed to pay off the second and now has just a $7,000 balance on the last one.

She has had to revert to some of her earliest job experience. Youngs first worked as a lifeguard in high school and started teaching swimming at 16.

“It pays better than minimum wage and it’s a skill that has served me well,” she said. “Who would have thought I’d need it now?”

Payment options

Some options for graduates having trouble repaying federal student loans:

• Borrowers can request a deferral or forbearance, which suspends payments temporarily.

• The extended-payment option makes monthly payments smaller by increasing the loan term.

• Income-based repayment allows the borrower to pay based on his or her monthly discretionary income.

• Starting July 1, all new federal student loans will come directly from the federal government. The move will eliminate fees paid to private banks that act as intermediaries, saving the government billions of dollars. The government expects to use much of the savings to boost the Federal Pell Grant Program for low-income students starting in 2013 and make it easier for some workers to repay student loans.

http://www.ajc.com/news/student-loans-can-be-554829.html

Ivy Dreams Deferred: The High Cost of Student Loan Debt

By: Zac Bissonnette

6/23/2010

"Ken," who asked that we not use his real name or other identifying details, recently graduated from an Ivy League university with a degree in computer science, and he will also have earned his master's degree from the same school by the end of the summer.

While elite schools are known for their generous financial aid packages, Ken's degrees came at a high price: $142,000 in student loans. Being the youngest of four in a family where everyone attended private school from elementary through high school meant that his parents were left in a difficult spot -- ineligible for financial aid, but also not even close to being able to cover the school's $50,000+ price tag per year for tuition, fees, room and board.

Good News and Bad News

To complicate matters, his father lost his job prior to Ken's junior year and, while he eventually did find another one, his salary took a steep dive: from $200,000 a year to $60,000.

The good news is that Ken found a job at a top software company, where he'll earn $80,000 his first year.

The bad news? For years Ken, a technology aficionado, has dreamed of working at a startup company. But his sky-high loan repayment obligations have made that dream impossible.

"I needed to find a job ASAP because I needed to start earning enough money to pay my loans," he said. "I didn't have the luxury of waiting. I would have loved to have the luxury of working at a startup, but I couldn't do that because of the student loans."

"It's hard for a large company to come up with new and exciting things," he adds. "There's 10 levels between me and the president. In a startup, it's easier to get things approved. I liked the idea of not only having a designated role, but being able to wear multiple hats, which you can't really do at a large company."

Paying Off Debt for Next 20 Years

And what about starting his own business? That's on hold, too.

"It'd be great if I was saving up money to do my startup, but I have so much debt that I'll be paying it off for the next 20 years," he says.

Ken believes that he could have gotten the same education and job by attending "any college," although he won't go so far as to say he regrets his choice.

But for now, it's fair to say that student loans have dramatically altered the course of his career. And he's not the only one. A 1998 survey conducted by Nellie Mae found that 17% of borrowers reported that "Career plans were significantly changed because of student loan debt." A 2006 report from the State Public Interest Research Group's Higher Education Project found that student loan debt turns students off of service-oriented careers like teaching and social work.

The takeaway for families is this: Before you sign on the dotted line for student loans, recognize the huge impact that debt can have on the soon-to-be graduate's career opportunities. Education is all about opening the door to a life of possibilities, but those possibilities can be dramatically limited by student loan debt.

http://www.dailyfinance.com/story/careers/dreams-deferred-the-high-cost-of-student-loan-debt/19526959/

How to face a student loan debt disaster

By Gary Foreman
Published June 17, 2010

Dear New Frugal You,
I recently graduated college, and while I have a hefty $25,000 of debt from undergrad waiting to be chipped away, I won't have to begin paying until I complete my master's courses in 2012. By then, it will be a lovely total of $40,000. I am now an independent, living on the other side of the country from my family, alone, in a one-bedroom apartment. I need tips on the best places to save as a young professional. (Work clothing? Business meetings?) And how am I going to prepare myself for this 2012 debt disaster? -- A Doomed Grad

Dear Doomed Grad,
(Somber pipe organ music playing in the background. Vincent Price voiceover:) "Welcome to the Temple of Debt Doom. We expect you to be staying with us for a long ... long ... time..."

There is indeed a dark shadow hanging over you, Doomed Grad. The same one that hangs over many college graduates. According to FinAid.com, the median cumulative debt for a four-year graduate was right at $20,000, with a quarter of them borrowing more than $30,000.

You're heading into scary territory. At current average student loan interest rates, you'll be paying about $315 each month in interest alone. And, depending on your loan, those rates may rise.

So how do you escape the horror of debt doom? The key is to quit living like a student. It's too tempting to spend as much money as a student can borrow. Students live as if a loan were income.

No rational financial advisor would suggest that you create a spending plan that treated borrowing as income. Yet, that's exactly how most college students budget. It's as if they can pretend the loans don't exist until they graduate and go to work in the "real world."

Instead, you should live like you've already finished school but haven't found a high paying job yet (a situation facing many recent graduates). Act as if you're making only $20k a year -- that's $1,666 per month before taxes.

That means that you can't afford to live in a one-bedroom apartment alone. Find a roommate. Professional clothing purchases should be put on hold until you have a high paying job. And, even then you need to shop sales, consignment and thrift stores.

Business meetings and any other expenses should be kept to a bare minimum -- certainly until you're able to score that big job and repay some debt. Any opportunity to reduce expenses should be taken.

The best thing that you can do is to keep the loan total from ballooning to $40,000. If you could keep the balance at $25,000, you would reduce your payments by a little over $100 per month.

The good news is that you have two years before you have to begin paying. So it's not inevitable that you'll owe $40,000. If you begin to adjust your spending now, your life will be much easier in a few years.

The alternative? Well, there's always our friend, Vincent, and the organ fugue ... Is that the sound of debt demons I hear cackling in the background???

http://www.foxbusiness.com/personal-finance/2010/06/17/face-student-loan-debt-disaster-164617504/

SMU student trying to keep college debt under control hopes possible tax break isn't axed

11:57 PM CDT on Saturday, June 19, 2010
By ERIC TORBENSON / The Dallas Morning News

Rahim Rupani always wanted a career in finance; he just didn't know it was going to cost this much.

Tuition, rent on an apartment and all the other expenses at Southern Methodist University run close to $50,000 a year, Rupani estimates. He's managed to get by for three years with about $14,000 or so in student loan debt, but more may be needed to get him through his final year.

It's been worth it so far because he considers SMU a great school. But as for the loans, "I'm always worried about paying it back. I don't want it to pile up."

When Rupani does start paying back the loans, he'll have a chance to deduct up to $2,500 of interest payments from his income as long as he's making less than $70,000 as a single earner.

That perk is among many tax breaks targeted for possible tightening as the federal government looks for ways to cut its debt. The student loan default rate in 2007 was 6.7 percent, moving up from about 5 percent in the previous five years.

"I think it's a fair tax break" for new students to have as they make their ways into the work world, said Rupani, who wants to get into wealth management, preferably in the Dallas area. "Anything to help you pay it back is helpful."

Rupani's cousin has student loan debt from medical school that he'll be repaying well into his 30s, and while that's not uncommon for doctors, it does give Rupani pause.

The 21-year-old Rupani also wants a master's degree in business administration down the road, which invites the possibility of more student loans, though he wants to work some before heading back to school.

He's intrigued by the option that removes all the interest payment if the loans are repaid fully within six months of graduating, though he recognizes that may not happen, depending on the kind of work he gets when he finishes school.

Rupani's parents are entrepreneurs – they own a convenience store – and that work ethic drove him to pursue a finance degree. He had planned to attend the University of Texas at Austin, but family circumstances led him to choose SMU.

"It's a prestigious school, but it does come with a price," he said.

http://www.dallasnews.com/sharedcontent/dws/news/localnews/stories/062010dnbusdebtrupani.1cbf1da.html

Few options exist for erasing $175,000 student loan debt

By Liz Pulliam Weston
Money Talk
June 13, 2010

Dear Liz: I really screwed up. I decided I wanted to go to a private college and am now saddled with $145,000 in private student loans and $30,000 in federal student loans. I am working on my master's degree and am about to have a child. I'm looking at payment options for when I graduate and am very scared for my family's future. I can't afford to pay $1,000 or more a month in student loans and I really want to buy a house so my family can have a home. What should I do?

Answer: You may have to give up your dream of homeownership. Maybe not forever, but probably for a long while.

The amount of debt you took on is staggering. In general, people shouldn't borrow more for an education than they expect to make the first year out of school — and there aren't many jobs that pay $175,000 at entry level.

Your options are few. You typically can't erase student loans in bankruptcy, and there is no statute of limitations on the debt, meaning your lenders can pursue you until you're dead.

You may be able to qualify for forgiveness on your federal student loans. People who work in public service jobs for 10 years can have the remaining balance forgiven, while those who work in other jobs can get forgiveness after 25 years. For more, visit FinAid.org and search for "loan forgiveness."

In any case, you should pay only the minimum on your federal loans and put as much as possible toward the private student loans, which have variable rates and less flexible repayment options. You're learning this too late, but paying for college with private student loans is a lot like using credit cards, except you don't have the possibility of wiping out the debt in bankruptcy.

http://www.latimes.com/business/la-fi-montalk-20100613,0,4248126.column

College Graduate with no job and 130k in debt!

Unemployed College Graduates and students are now turning to the internet to make money. Why? A recent call into the Suze Orman Show may give you a clue. Just like millions tune into Oprah for solutions to their personal problems, millions tune into Suze for their money problems. Suze's "energizer bunny" optimism, warm personality and infectious smile are hard to turn off once you tune in. The show is such a big hit with college students, it's no surprise her latest work "The Money book for the Young, Fabulous & Broke" has been on the Amazon bestseller for some time.

Needless to say when Suze entertains calls from viewers, many are college students. Being a financial genius, solutions usually roll off her tongue without hesitation, however one caller left Suze a little perplexed. Nicole was a female College Graduate who had taken out over 90k in student loans, 130k total with interest, now after graduation her monthly payments were $1300 a month, ouch. "What did you go to College to Study?" Suze asked. "To be a Fashion Designer," she said meekly. Suzie gulped, then asked her if she'd thought about all this in hindsight. "When you're young you have all these aspirations," she answered. Since students loans can't be written off in bankruptcy, the only advice Suze could give her was to find a job that would cover the monthly payments and hopefully leave her enough money to live on.

If this College Graduate was a victim of her own unrealistic "aspirations," her University is just as guilty by catering to those "aspirations." Apparently a counselor didn't sit her down and explain the realities of the job market in that field. If the 90k in loans had been spent on a Medical or Law degree, this young lady would have a chance, but how plentiful are high-paying jobs in Fashion Design? While nothing is impossible, unless she was exceptionally talented (not to mention living in New York), chances are she won't find any opportunities in that field. She'd probably end up doing something totally different; and since most entry-level jobs start between 25-30k, the loan would take up almost half of her monthly income. Needless to say, she'll probably be living with her parents a long, long time.

http://www.squidoo.com/WealthyCollegeGrad

Stuck with student loans for life?

By Liz Pulliam Weston
MSN Money

Leah Cowels had always heard that student loans were an investment in her future. Now that she owes $242,000 for an undergraduate degree she isn't using, she's having second thoughts.

"I never really knew what I was going to owe when I got out," said Cowels, 25, who works as a waitress in New Hampshire. "I certainly never knew it was going to be (the size of) a mortgage."

Cowels approached college with all the confidence, dare I say arrogance, of an 18-year-old who wanted what she wanted when she wanted it. She knew her parents couldn't pay for her education at private Ithaca College in New York, but she was determined to go there once she was accepted. Ithaca provided some financial aid but not nearly enough to cover the $35,000-a-year tuition bill or Cowels' living costs, so she applied for student loans.

"I was going to be successful and make a lot of money," Cowels said. "I didn't care if I could afford (the education) or not."

Her plan was to major in sports management and then get a law degree so she could be a sports attorney. Unfortunately, a disastrous internship with the Boston Celtics changed her mind.

"I hate business," she said. "I hated every second of it."

Debts stymie new career goal
Cowels now knows what she wants to do, which is to become a physician's assistant. She figures she could triple her current income waiting tables and manage the $2,000-a-month payments she should be making to pay off her loans.

But she's not sure how she would pay for two more years of school and still cover even the much-reduced payments she's required to make on her loans. Her largest debt is a private student loan for $160,000, which has accrued $60,000 in interest so far.

"I've used up all my forbearance and deferments. I'm on a graduate repayment schedule, paying half of what I should, and that's $1,000 a month," Cowels said. "I'm stuck."

Stories like Cowels' cause some to condemn all student loans as bad debt. Writer Mary Pilon recently took it a step further: She wrote in The Wall Street Journal that "student loans are one of the most toxic debts."

Not quite.

Only some student loans are toxic
Credit card debt, payday advances and pawnshop loans are examples of toxic debt. You're paying for nothing, in essence, except for the privilege of having your financial security eroded.

Though any debt in excess can be toxic, as we've learned in the wake of the mortgage meltdown, student loan debt actually can help people get ahead by qualifying them for jobs that enhance their lifetime incomes.

The problem is that too many people don't make a clear enough distinction between federal student loans, which usually are good debt, and private student loans, which often aren't.

The key differences:

Interest rates. Federal student loan rates are generally fixed at 6.8% for unsubsidized Stafford loans and 5.6% for subsidized loans (although subsidized rates are scheduled to drop to 3.4% by 2011). Private student loan rates currently average 11% to 12%, and they're variable, which means their rates are likely to march higher. Furthermore, most students don't know the rate they'll get on a private loan until after they apply. Private student lenders aren't required to disclose the costs of the loan in advance, which makes it virtually impossible to shop for the best deals.

Amounts. To be prudent, most students should limit their total student loan debts to no more than what they expect to make the first year out of school. Students typically can't borrow more than $31,000 in federal Stafford loans for an undergraduate degree, so overdosing on this kind of debt is tough. There's no real limit on how much private student loan debt you can take on, however.

Repayment options. Federal student loans come with repayment options for almost every budget. You can opt for graduated payments that start small and rise over time, extended payments if you need more time to pay back your loans, or plans that base your payments on your income. You can get deferrals or forbearance if you get laid off or suffer other economic setbacks. Private student loan repayment plans are much less flexible.

Forgiveness. If you work in a public-service job and make payments for 10 years, the remainder of your federal student loan debts can be forgiven. Even if you're not in public service, there's a limit to your financial servitude: Any remaining balance is forgiven after 25 years of payments. Private student lenders aren't so forgiving. In fact, they're not forgiving at all.

That leads me to one thing federal and private student loans have in common: Both are extremely hard to erase in bankruptcy court.

Student loans are forever
To get out from under student loan debt, you basically have to prove not only that you can't pay your loans now but that you have no hope of paying them in the future, bankruptcy attorneys say. So if you're totally and permanently disabled, you can get your loans erased. Otherwise, you're usually stuck with them, although in cases of serious hardship you may get some fees or interest knocked off.

Federal student loans got this special status in bankruptcy court in 1998. In 2005, private lenders persuaded Congress to extend the same protection to their debt -- even though private loans don't involve government guarantees or taxpayer subsidies, which was the rationale for making federal student debts hard to discharge in bankruptcy.

Lenders who make private student loans know they've got borrowers in a corner. After allowing teenagers to sign up for life-altering amounts of debt -- amounts that often bear no relation to what the student is expected to earn after graduation -- private lenders know they can pursue borrowers for the rest of those lives to get paid back.

Congress was worried enough about lenders taking advantage of college students that it made credit cards harder to get for people under 21. But it's put no similar protections in place for kids seeking student loans. So while a college student may no longer be able to get a $500-limit credit card, he or she can still take on hundreds of thousands of dollars of unshakable student loan debt.

In "4 fixes for the student loan trap," I outlined the changes I think need to be made, including boosting federal student loan limits, requiring students to exhaust federal loans before applying for private loans and giving bankruptcy courts the power to modify private loans.

But the most important change needs to come in how students and parents view education loans. If they don't understand the differences between federal and private student loans, and put strict limits on how much of the latter debt they take on, they may spend a lifetime regretting their ignorance.

http://articles.moneycentral.msn.com/CollegeAndFamily/CutCollegeCosts/weston-stuck-with-student-loans-for-life.aspx?page=1

The $555,000 Student-Loan Burden

By MARY PILON - WSJ
FEBRUARY 13, 2010

As Default Rates on Borrowing for Higher Education Rise, Some Borrowers See No Way Out; 'This Is Just Outrageous Now'

When Michelle Bisutti, a 41-year-old family practitioner in Columbus, Ohio, finished medical school in 2003, her student-loan debt amounted to roughly $250,000. Since then, it has ballooned to $555,000.

It is the result of her deferring loan payments while she completed her residency, default charges and relentlessly compounding interest rates. Among the charges: a single $53,870 fee for when her loan was turned over to a collection agency.

"Maybe half of it was my fault because I didn't look at the fine print," Dr. Bisutti says. "But this is just outrageous now."

To be sure, Dr. Bisutti's case is extreme, and lenders say student-loan terms are clear and that they try to work with borrowers who get in trouble.

But as tuitions rise, many people are borrowing heavily to pay their bills. Some no doubt view it as "good debt," because an education can lead to a higher salary. But in practice, student loans are one of the most toxic debts, requiring extreme consumer caution and, as Dr. Bisutti learned, responsibility.

Unlike other kinds of debt, student loans can be particularly hard to wriggle out of. Homeowners who can't make their mortgage payments can hand over the keys to their house to their lender. Credit-card and even gambling debts can be discharged in bankruptcy. But ditching a student loan is virtually impossible, especially once a collection agency gets involved. Although lenders may trim payments, getting fees or principals waived seldom happens.

Yet many former students are trying. There is an estimated $730 billion in outstanding federal and private student-loan debt, says Mark Kantrowitz of FinAid.org, a Web site that tracks financial-aid issues—and only 40% of that debt is actively being repaid. The rest is in default, or in deferment, which means that payments and interest are halted, or in "forbearance," which means payments are halted while interest accrues.

Although Dr. Bisutti's debt load is unusual, her experience having problems repaying isn't. Emmanuel Tellez's mother is a laid-off factory worker, and $120 from her $300 unemployment checks is garnished to pay the federal PLUS student loan she took out for her son.

By the time Mr. Tellez graduated in 2008, he had $50,000 of his own debt in loans issued by SLM Corp., known as Sallie Mae, the largest private student lender. In December, he was laid off from his $29,000-a-year job in Boston and defaulted. Mr. Tellez says that when he signed up, the loan wasn't explained to him well, though he concedes he missed the fine print.

Loan terms, including interest rates, are disclosed "multiple times and in multiple ways," says Martha Holler, a spokeswoman for Sallie Mae, who says the company can't comment on individual accounts. Repayment tools and account information are accessible on Sallie Mae's Web site as well, she says.

Many borrowers say they are experiencing difficulties working out repayment and modification terms on their loans. Ms. Holler says that Sallie Mae works with borrowers individually to revamp loans. Although the U.S. Department of Education has expanded programs like income-based repayment, which effectively caps repayments for some borrowers, others might not qualify.

Heather Ehmke of Oakland, Calif., renegotiated the terms of her subprime mortgage after her home was foreclosed. But even after filing for bankruptcy, she says she couldn't get Sallie Mae, one of her lenders, to adjust the terms on her student loan. After 14 years with patches of deferment and forbearance, the loan has increased from $28,000 to more than $90,000. Her monthly payments jumped from $230 to $816. Last month, her petition for undue hardship on the loans was dismissed.

Sallie Mae supports reforms that would allow student loans to be dischargeable in bankruptcy for those who have made a good-faith effort to repay them, says Ms. Holler.

Dr. Bisutti says she loves her work, but regrets taking out so many student loans. She admits that she made mistakes in missing payments, deferring her loans and not being completely thorough with some of the paperwork, but was surprised at how quickly the debt spiraled.

She says she knew when she started medical school in 1999 that she would have to borrow heavily. But she reasoned that her future income as a doctor would make paying off the loans easy. While in school, her loans racked up interest with variable rates ranging from 3% to 11%.

She maxed out on federal loans, borrowing $152,000 over four years, and sought private loans from Sallie Mae to help make up the difference. She also took out two loans from Wells Fargo & Co. for $20,000 each. Each had a $2,000 origination fee. The total amount she borrowed at the time: $250,000.

In 2005, the bill for the Wells Fargo loans came due. Representatives from the bank called her father, Michael Bisutti, every day for two months demanding payment. Mr. Bisutti, who had co-signed on the loans, finally decided to cover the $550 monthly payments for a year.

Wells Fargo says it will stop calling consumers if they request it, says senior vice president Glen Herrick, who adds that the bank no longer imposes origination fees on its private loans.

Sallie Mae, meanwhile, called Mr. Bisutti's neighbor. The neighbor told Mr. Bisutti about the call. "Now they know [my dad's] daughter the doctor defaulted on her loans," Dr. Bisutti says.

Ms. Holler, the Sallie Mae spokeswoman, says that the company may contact a neighbor to verify an individual's address. But in those cases, she says, the details of the debt obligation aren't discussed.

Dr. Bisutti declined to authorize Sallie Mae to comment specifically on her case. "The overwhelming majority of medical-school graduates successfully repay their student loans," Ms. Holler says.

After completing her fellowship in 2007, Dr. Bisutti juggled other debts, including her credit-card balance, and was having trouble making her $1,000-a-month student-loan payments. That year, she defaulted on both her federal and private loans. That is when the "collection cost" fee of $53,870 was added on to her private loan.

Meanwhile, the variable interest rates continue to compound on her balance and fees. She recently applied for income-based repayment, but she still isn't sure if she will qualify. She makes $550-a-month payments to Wells Fargo for the two loans she hasn't defaulted on. By the time she is done, she will have paid the bank $128,000—over three times the $36,000 she received.

She recently entered a rehabilitation agreement on her defaulted federal loans, which now carry an additional $31,942 collection cost. She makes monthly payments on those loans—now $209,399—for $990 a month, with only $100 of it going toward her original balance. The entire balance of her federal loans will be paid off in 351 months. Dr. Bisutti will be 70 years old.

The debt load keeps her up at night. Her damaged credit has prevented her from buying a home or a new car. She says she and her boyfriend of three years have put off marriage and having children because of the debt.

Dr. Bisutti told her 17-year-old niece the story of her debt as a cautionary tale "so the next generation of kids who want to get a higher education knows what they're getting into," she says. "I will likely have to deal with this debt for the rest of my life."

http://online.wsj.com/article/SB10001424052748703389004575033063806327030.html

Student loan fugitives

By Jen Haley, CNN

When faced with unaffordable monthly payments and relentless creditors, some see leaving the country as their only way out.

NEW YORK (CNN) -- Carl, a Florida native now living overseas, is afraid to move back to the United States. That's because he can't afford to pay his student loans.

Carl (who doesn't want his last name used) stopped making his $450 monthly payments after his family incurred some unexpected medical expenses, and his $55,000 private loans went into default. That's when the phone calls from debt collectors started, and Carl decided not to come back.

"It was made clear that if I ever came home, I'm screwed," says Carl.

Today, he estimates his private loans are more than $70,000. Though he hopes to move home one day, for now, staying abroad is the only option he can see.

"If it means I have to live in exile from friends and family...well, that's the breaks. So be it. But I won't put my family in a situation where they are afraid," he says.

While most Americans are burdened with debt of some kind, student loan repayment can be a particularly scary prospect for young people struggling to start a career. Payments are often higher than expected, and the loans can't easily be discharged. Added pressure from debt collectors causes some grads to flee their loans by fleeing the country.

"These are people new to borrowing and they didn't understand what they were getting into," says Mark Kantrowitz of Finaid.org, an online student loan information Web site. "It's a very sorry situation that it comes to students feeling they have no option than to leave the country," he says. "It's a sign the system is broken."

To date, there is about $60 billion in defaulted student loan debt according to Chris Lang of the New York-based debt collection agency, ConServe. But while skipping town to avoid paying student loans isn't very common - Lang estimates that only about 2% to 4% of delinquent student loan debt is owed from students abroad - for some, it seems like the only way out.

International addresses make it more difficult to find people, and collection companies would usually need to hire an international counsel or a third party collector to recoup the debt, cutting into their profits and reducing their incentive to go after a debtor.

"It increases our expenses to go overseas," says Justin Berg of American Profit Recovery, a debt collection agency in Massachusetts. "Our revenues are cut by more than half," he says.

Very little relief
Chris left the country to help pay his debt, not to avoid it. But when that didn't work out, he saw his foreign address as the only way to escape.

Chris (who doesn't want his last name used) graduated with about $160,000 in student loan debt with a master's degree in music.

"At the time I thought I could handle it. I thought the most I'd be paying was $600 a month," he says.

But his payments were $2,400 a month. So Chris started looking for jobs overseas. He thought he'd be able to earn more and pay off his loans. But it didn't turn out that way. His salary was even less than what he was making back home. He realized there was no way he could make his payments, so he changed his address.

"They think I'm living somewhere in Arizona," he says. His last payment was a year and a half ago.

"I am upset at myself. I could have gone to a cheaper school," Chris says. "But I'm most angry at the fact that for anyone who has debt that's not student loan debt, there's relief. You can get into $150,000 worth of credit card debt and you can declare bankruptcy and you can go on with your life. But with student loans, you're being punished for being a better person."

While getting student loans discharged through bankruptcy is no easy task, that doesn't mean it can't be done.

"There's a mythology that private student loans can't be discharged. But sometimes they can and should," says Kantrowitz.

To get your student loans discharged, you must file an undue hardship petition. To qualify, you have to satisfy three conditions: First, you must not be able to repay your student loan and also maintain a minimal standard of living based on your income and your expenses. Second, your situation must likely persist for a significant portion of the repayment period of the loan. Finally, you must have made good faith efforts to repay the loans.

In about half of cases of people who do file for this hardship petition, debt will be partially or totally discharged, says Kantrowitz.

Lifting the burden
If you're having trouble paying your student loans there are steps you can take, according to Kantrowitz.

If your income isn't sufficient to repay a federal loan, you can apply for an economic hardship deferment or forbearance which would suspend or reduce your monthly payments. To find out if you qualify for these programs, check out the hardship calculator at http://www.finaid.org/.

If your money problems are longer term - say your career path doesn't pay well - there are some alternate payment plans that you can explore. An extended repayment plan could lower your payments. But it also increases the life of your loan so you'll wind up paying more in the long run.

If you have federal loans through the Direct Loan program, you may qualify for an income contingent repayment plan. In this case your payments are based on your income and your debt load .

These steps must be taken before you default on your loan. If your loan is already in default, you won't qualify for deferments or forbearances. If you can't resolve an issue, contact the Federal Student Aid Ombudsman at http://www.ombudsman.ed.gov/ or call 1-877-557-2575.

If you have defaulted on a federal loan, you can rehabilitate yourself. It will require you to make nine to twelve full payments of some agreed-upon amounts within a certain time period to the Department of Education. For more information on this, contact the Department at 1-800-621-3115.

And there's another way to get help if you're buried under student loans. Talk to a non-profit counselor.

The counseling session should be free of charge. Make sure you ask if the agency works with student loans. And in addition to helping you with your student loan payments, these agencies can work with you to manage your spending and your budget. If you are put on a managed debt program, there is typically a small fee. To find a non-profit credit counselor in your area go to the National Foundation for Credit Counseling at www.nfcc.org.

http://money.cnn.com/2008/10/23/pf/college/student_loan_fugitives/index.htm?section=money_pf_college

Student loan exile longs to come home

Glenn Watson | 31st May 2010

Aussie teacher Gavin Clifford would love nothing more than to live and work in New Zealand.

The problem is that his Wanganui-raised partner, Alice Nixon, fears she will be arrested if she returns home with him.

Ms Nixon, 29, left for Australia 10 years ago, leaving behind a hefty student loan.

With interest added, that sum has now blown out to $40,000.

Now Ms Nixon, also a teacher, says she wants to do the right thing and pay back the principle.

But she wants the interest written off, saying it's only fair as most student loans are now interest-free.

In a letter to the Chronicle, Ms Nixon writes:

"I belong to a generation of young New Zealanders who have attended university, received degrees and moved overseas but, alas, are fated never to return, due to mounting debt through accrued loan interest, a lack of accessible repayment information, heavy international transfer fees, and now the rumoured threat of asset seizure and jail time if we return.

"There is no doubt we are the guinea pig generation - caught between one generation who are now reaping the benefits of their free education and another who bask in interest-free loans.

"The majority of us are productive citizens.

"Some of us are doctors, lawyers, teachers; many of us have gone on to further education and all of us have accumulated a horrendously crippling debt.

"It's ridiculous to think of the money the NZ Government is spending trying to entice immigrants to ease the skills shortages when there are so many skilled New Zealanders living in student loan-induced exile overseas."

Ms Nixon teaches literacy, English and history and holds a position just below an assistant principal at a school in Victoria.

Her partner teaches media and English and is an IT coach to other teachers.

"Gavin has often tried to convince me to make the move back across the Tasman with him," said Ms Nixon.

"He visited New Zealand for the first time in 2007 and fell in love with the overwhelming greenness. Melbourne is gripped by drought and water storage is at only 30 per cent. New Zealand would definitely be an option, as we are considering starting a family."

Mr Clifford says he feels for his partner.

"It's such a shame that Alice has such a huge loan.

"It's not the primary amount that's the problem.

"We could pay that off very quickly. It's the incredible interest. It is higher interest than our home loan.

"I hope something can be worked out and we can then plan for a life in New Zealand."

Ms Nixon said her biggest frustration is getting basic information from Inland Revenue.

"They don't call you back, or they send you the wrong forms. In fact, when I first arrived in Australia, one IRD worker at home advised me not to come back, or worry about it when I came back.

"They make trying to make repayments for people overseas nearly impossible - forms, exchange rates, international transfer fees. When you compound all the costs of getting your money to them and then put interest on top, you are endlessly going backwards."

Yesterday an Inland Revenue staffer urged Ms Nixon to contact the department and discuss her loan. The staff member said it was unlikely she would be arrested at the airport but that she would be expected to repay the loan in full.

http://www.wanganuichronicle.co.nz/local/news/student-loan-exile-longs-to-come-home/3914955/

Student loan default rises due to high unemployment among college grads

by Yewon Kang
May 13, 2010

The student loan default rate continues to rise along with the unemployment rate, according to the latest figures released this month by the Department of Education. That's left recent graduates to worry about how they will pay off thousands of dollars in student loan debt.

Preliminary data for the student loan default rate in 2008 was 7.2 percent, up from 6.7 percent in 2007 and 5.2 percent in 2006, putting it at the highest level since 1999. The "cohort" default rate, which is released annually by the department, refers to the proportion of federal loan borrowers who began repaying loans between October 2007 and September 2008 and defaulted by the end of September 2009.

The unemployment rate for people with bachelor’s degrees and higher over the age of 25 was 5 percent in February, more than double the rate in February, 2008, according to the Bureau of Labor Statistics.

Jenni Smith, who just graduated from Northpark University in Chicago with a degree in English and a teaching certificate, thought she wouldn’t have a problem finding a job. But that’s not the case as cash-strapped states slash education spending and lay off teachers. She is left with $75,000 of debt with no certainty of becoming a teacher anytime soon.

“Getting a job is unrealistic at this point. I’m essentially a free teacher now,” said Smith, who’s teaching part-time at a local school to fulfill the 100-hour requirement of fieldwork. “It’s been hard.”

It will be harder when Smith must start paying back her loans after the customary six-month grace period ends. She says she has no intention of defaulting on her loans, but for thousands of other college graduates who have either lost their jobs or never found one after getting their degrees, default seems like an answer.

The primary driving factors behind a rising default rate are high unemployment and changes in interest rates on many student loans, said Mark Kantrowitz, publisher of FinAid.org. Recent graduates will see "cross-currents" with their student loans' interest rates, Kantrowitz said. Overall, students who graduated last year have seen an average increase in interest rates, but they will start to see a decrease as government aid policies kick in.

To ease the burden of student loans, the Student Aid and Fiscal Responsibility Act was signed into law in March as part of healthcare reform. Under the law, private lenders will no longer receive government subsidies to issue federal loans. Instead, the government will provide the loans directly to student borrowers, which is expected to translate into more grants for students at lower interest rates.

"The high interest rates on private student loans have made them incredibly profitable for loan companies and saddled students with crushing debt," said Dick Durbin (D-Ill.) in a press release on the bill he introduced last month to allow private student loans to be forgiven if the borrower files for a bankruptcy. The legislation is under consideration by the House Judiciary Committee.

Another law will also take effect in July 2011 that will cut one key student loan rate to 3.4 percent from 6.8 percent currently. The College Cost Reduction and Access Act of 2007 applies only to undergraduate student borrowers under the Federal Family Education Loan and Direct Loan program.

However, the new laws are too late to help the current crop of college graduates who need to start paying back their loans. Also, critics say recent legislation has focused too much on the financing of student loans, rather than what they see as the underlying problem.

"The real problem is not lenders who are charging high rates to students, but why students have to take out loans to such a great extent in the first place and that's a function of tuition cost," said Sameer Gokhale, a senior analyst with Keefe, Bruyette & Woods.

Private loans take about 20 percent of the student loans and 80 percent are estimated to be federal or government-backed loans, according to TransUnion LLC, a consumer credit reporting agency.

Over the last two years, private student loan lenders like Sallie Mae experienced significant credit losses, driven by the subprime private student loan portfolios, Gokhale said. But he expects the company to see credit quality improve in the near future. "There's some light at the end of the tunnel as far as credit quality goes."

On the other hand, Fitch Inc. recently downgraded the asset-backed securities on private student loans for the first quarter of 2010. The downgrades reflected default rates that continue to rise higher than Fitch's initial expectations, according to its report on Jan. 29.

It took Vanessa Harikul four years to pay back $24,000 of her loans with Sallie Mae after she graduated in 2005. She started at an entry-level job at a telecommunication company in downtown L.A. With an income of $30,000 a year, Harikul barely made the minimum of $263 a month for her student loan payment.

“It was difficult, a big adjustment,” Harikul said. She drove an old car and cut back on credit cards. After paying rent and other bills, any extra money went to the student loan payment, she said.

High debt levels are more common among independent students like Harikul and Smith as opposed to dependent students who may be getting support from their parents or spouses, according to the College Board in its report examining 2007-08 bachelor's degree recipients who graduated with more than $30,500 in education debt.

The consequence of defaulting on student loans can be brutal, according to FinAid.org, a website informing students about education loans. The loans may be turned over to a collection agency, which can garnish students’ wages and hurt their credit records.

http://news.medill.northwestern.edu/chicago/news.aspx?id=164598

Have Degree: Will Work for Food

Tess StovallSenior
Posted: May 24, 2010 10:47 AM

A college diploma was once a permanent ticket to job security. But today's graduates are seeing many more rejection letters than paychecks in what's become the worst job market for new graduates in decades.

In March 2010, the unemployment rate for people 21-25 was 15.8%, while the unemployment rate for all college graduates was nearly three times its historic average.

Worse yet, many graduates face the double burden of unemployment and student debt. Two-thirds of today's college graduates leave school with student debt and with an average debt burden of $23,000. As a result, student loan defaults are steadily creeping upward, from 4.5% in 2003 to 6.7% in 2007.

There's little doubt that these young graduates, who have worked hard to earn their diplomas and fulfilled their families' expectations, deserve some extra help until the job market improves. Congress can step in to help in three ways:

1. Increase the student loan interest deduction

Current law allows students to deduct up to $2,500 in student loan interest--a relatively paltry amount given the growing average debt burden carried by today's graduates. Graduate and professional students carry even greater burdens--more than $47,000 on average for graduate students as a whole and $93,000 on average for law school graduates.

Raising the maximum deduction by just $1,000--to $3,500--could potentially save students thousands of dollars over the life of a loan. In addition, Congress should continue to keep this deduction available for individual taxpayers earning up to $75,000 (and $150,000 for joint filers). At the end of 2010, this deduction is currently scheduled to be available only for borrowers earning up to $55,000 a year ($75,000 for joint filers).

2. Allow interest-free unemployment deferments

Under the current federal student loan program, borrowers can apply for a "unemployment deferment" that allows them to postpone making loan payments if they are unemployed or face other financial hardship.

During the deferment period, students with so-called "subsidized" loans do not accrue additional interest, while students with private loans and "unsubsidized" loans do. The result is that these borrowers face higher payments once they are back on their feet because of the interest that was accumulated and is now added to the balance of their loans.

Congress should temporarily subsidize the interest on all student loans during an unemployment deferment, regardless of the type of loan. For a graduate with $25,000 in unsubsidized federal student loan debt, this program would save them more than $700 in interest over his or her deferment period--a significant amount to a graduate just launching a career.

3. Allow families to rebuild college savings accounts to pay off student debt

The financial crisis took a significant hit on college savings accounts, with the cumulative balance in 529 accounts dropping $27 billion from 2007 to 2009. For parents of soon-to-be college freshmen, there might not be enough time for their accounts to recover from their losses, forcing them to take out unexpected loans to cover the difference.

Currently, funds from 529 accounts can be used to pay for tuition and fees, books, supplies, and other equipment required to attend a college or university, but not to repay student loans. With the substantial losses they have seen, many parents are facing a use-it-or-lose-it scenario with their 529 accounts. They can realize their losses now and pay for some of the tuition bills for their children, but probably far less than what they could have covered in 2007. Or the parents can keep their money in the 529 account and hope that they regain some of their losses, but risk having to withdraw funds for non-qualified uses and pay a penalty.

Congress should help alleviate this problem by temporarily allowing parents to use funds from 529 savings accounts to repay student loans taken out by their children.

Today's college graduates are tomorrow's workers and leaders. Temporary help can restore them to sounder footing so they can fulfill their full potential. With these three simple steps, Congress could relieve some of the anxiety and stress that many recent graduates are currently facing.

http://www.huffingtonpost.com/tess-stovall/have-degree-will-work-for_b_587109.html

One diploma and a whole lot of loans

By B. T. Donleavy, Guest blogger / May 13, 2010

In the advent of the worst financial crisis seen in decades, there is much to be learned. Many economists agree that creating false demand will eventually create a bubble and crush a market much faster than the natural economic cycle. Take for instance the student loan market. Student loans, subsidized and unsubsidized, allow an 18-year-old to finance some or all of the next four years of his or her life, including living expenses. Morally, is it right to allow our children to start their lives immersed in debt?

In 1992, Congress increased the amount of money a student can borrow from the federal loan program with the reauthorization of the Higher Education Act. The act also enabled students defined as "in need" easier access to funding. Now we see student loans dominating the higher-education industry and accounting for 50% of all financial-aid packages.

According to FinAid.org, the average range of tuition inflation is normally 8% annually, and prices have not fallen or stabilized once since 1977, regardless of economic climate. In 2004, the Census Bureau released a report saying private university and college tuition are "up 93 percent from 1990." This symptom may be attributed to cheap and accessible money, and it is becoming an issue now because tuition is still rising but wages have been flat for a decade.

The Department of Education reports having a $63.7 billion budget in appropriations for 2010. It has also received $96.8 billion from the American Recovery and Reinvestment Act of 2009. The department's website states that "department programs also provide grant, loan, and work-study assistance to more than 14 million post-secondary students." That is roughly 4 million short of every college student in the country. Does this mean that only 22% of students in the United States have adequate means to pay for college? Based on America's economic model, this statistic should theoretically be impossible. This means that over 3/4 of Americans attending higher-education institutions are "in need."

There are benefits to the industry being able to increase prices. Colleges and universities need to be competitive. New revenue means that a college or university can afford better professors and improve infrastructure. It can create new dorms for incoming students and build new facilities to allow better access to labs and campus centers. The overall quality of a school and the educational services it offers will increase.

Loans and grants are not necessarily a bad thing, but when the amount of money flooding the industry drives up the demand to the point of the former becoming a market essential, there is an influx of risk. Similarly, healthcare has also enjoyed the fruits of easy money because of the insurance industry. The added funding for research and development has aided advances in medication and technology. But third-party funding usually drives prices up because consumer decision is weakened in the economic equation. Now healthcare is often unaffordable to the independent purchaser.

In most cases, student aid is an immeasurable liability. The individual's risk at 18-years-old cannot be accurately quantified even with a cosigner. Realistically, no private institution would lend this kind of capital to such a young demographic without credit history. It also should be noted that reports have shown average college students to carry 4 credit cards and an average balance of $3,000 that they cannot pay off in full. This is a small sum compared to the amount they will inherit after a four-year tenure, but it shows that credit is being handed out indiscriminately. A massive amount of speculation is being placed on the payees with no indication of them being able to afford repayment.

A boost in educational funding for financing may come at a price. If the current trend continues, students will increase the amount financed and they will be paying for the majority of their education in loans. As the January 14 edition of the Economist notes, "only about 400,000 more Americans were employed in December 2009 than in December 1999, while the population grew by nearly 30m." With an unemployment rate of 10% (real figures are closer to 17%), matters look only more ominous.

Millions of students will graduate with the same popular majors and compete for fewer jobs because a significant amount of manufacturing and industry has left the United States. The supply of students entering the job market will be endless, and businesses will lower the base pay of new employees because of their abundance.

The other scenario is that businesses will not hire them at all because they are fully staffed, thus creating a bottleneck in the job market. Unemployment, Social Security, and Medicare will all suffer from the supply and demand effects of this type of crisis.

State and city universities will not be able to handle every student but they may remain the most inexpensive way of obtaining a diploma. City University of New York has reported a 77.5% increase in transfer students in the last year. This is a sign of education becoming unaffordable. Without major state funding or tuition increases CUNY's infrastructure will not be able to handle the capacity of incoming students.

It is difficult to come to a reasonable assessment on how to address an impending student-loan crisis. Candidates running on a platform of limiting financial aid or reducing the Department of Education will be writing a political death sentence for themselves. The recent Health Care and Education Reconciliation Act of 2010 will end subsidies for student aid to private lenders. This will make it easier for students to shop for a loan by going directly to the source but will only address who controls the market and has no effect on the economics of tuition cost.

Payments will have a threshold of 10% of a graduate's disposable income and will be forgiven after 20 years while a public servant will be forgiven after ten. The risk associated with loan obligations are shifted to the taxpayer. Consequently, the act removes obligation and creates a moral hazard with the creation of a virtual backstop. With the combination of this backstop and decreasing wages because of an oversupply of workers, the result can only perpetuate default. This bursting bubble will be massive and will affect other major industries such as housing, auto, and credit.

Because of the ease of obtaining these types of loans and leniency in repayment terms, the postsecondary education industry may possibly raise tuition at a faster rate. There lies no risk for a college or university. As long as prices are met, schools can charge whatever the market is willing to pay. Keeping up with the rising costs will be difficult to do because public funding will have to increase exponentially relative to tuition.

In conclusion, we see that the theory of scholastic financial assistance through government intervention does not perform as advertised. The program will actually only hurt the people it is trying to help.

Parents are no longer able to save for their child's college years because postsecondary education price inflation is exponentially higher than the savings rate. This forces more and more students to go into debt before they earn their first professional dollar. It will eventually be disruptive to the economy and will have a massive impact on other industries. Furthermore, debt forgiveness is a moral hazard that means that the debtor has no real obligation and the taxpayer is now responsible.

Whether the student-loan industry is run by the American government or by subsidized lending institutions, the business model is flawed and will continue to force prices upward regardless of whether it makes economic sense.

http://www.csmonitor.com/Money/Mises-Economics-Blog/2010/0513/One-diploma-and-a-whole-lot-of-loans

Defaulting on Student Loans can have Long-term Effects

Posted: May 28

Raleigh, N.C. — In North Carolina, as many as 55 percent of people currently have student loan debt. The average amount, according to a local credit counseling agency, is $18,000.

A student loan is easier to get than other types of loans, but if you default on it, it can have a devastating effect.

That's the case for Vanessa Sumlin.

Sumlin started with $12,000 in federal student loans five years ago, but even after paying $9,600 back, she thinks she still owes about $10,000.

"When I paid $7,500, I didn't hear from them for three years," she said.

Because she stopped paying, she has defaulted on the loan. That means the balance is due and the interest rate increases.

The government is going after her paycheck and her tax refunds to get money. Every two weeks, her paycheck is garnisheed about 15 percent.

"It will stay with you to the grave," said Victoria Wright, an expert in bankruptcy, credit and housing counseling for the nonprofit Hummingbird.org.

"With federal student loans, there's no statute of limitations," she continued. "Even elderly people can have their Social Security offset and garnisheed for a loan that was 50 years before."

Wright says the default rate is on the rise, and more people, like Sumlin, will find themselves stuck.

Part of the problem for Sumlin is the paperwork. It seems to indicate several different balances, and those balances are different from what she's been told over the phone.

Default is difficult, but there are still a few options, Wright says.

"Request a reasonable and affordable payment plan to rehab the loan and bring it out of default," she said.

Wright says there may also be an option to consolidate the loan, which is like refinancing.

Sumlin knows she's at fault but says there's still time for a better payment plan.

"I would love to pay this loan off or just come to a manageable amount," she said.

She moved to Aberdeen to care for her elderly parents. She says she forwarded her mail and figures that's when she stopped getting statements.

Out of sight, out of mind cost her.

"They make it sound really easy and nice," Sumlin said. "They send the money, but before you cash that check, you better read the fine print."

In the 1990s, nearly one in four people defaulted on student loans. The numbers improved for many years but are once again on the rise

http://www.wral.com/news/local/wral_investigates/story/7690243/

Up for bid: 1 Purdue Diploma for $36K to Help Pay Student Loans

By ERIC WEDDLE
May 27, 2010

UPDATE: Purdue diploma removed from eBay

The sale of a Purdue University diploma on eBay was halted today.

The Internet auction site removed Nick Enlow's 2008 bachelor's degree in psychology because it violated its terms of use.

According an e-mail Enlow received from eBay, diplomas can not be listed for sale due to the sensitivity and nature of the item.

Enlow started the bidding on the diploma this week at $36,000 in an oddball attempt to pay off his student loans and also to strike up a conversation about debt and the worth of a college education.

The Indiana University-Purdue University Indianapolis graduate said his degree did not help him get a job that paid enough to cover his $470 monthly loan bill to Sallie Mae.

But the attempted sale prompted Sallie Mae to call Enlow Wednesday and discuss payment options.

Enlow said he would not contest eBay's decision.

"The dialogue has been started," he said. "What's done is done."

Editor's note: The following story appeared earlier today at jconline.com

Up for bid: 1 diploma for $36K
A Purdue University diploma can be yours for $36,000 -- plus shipping and handling.

But this bachelor's degree in psychology won't have your name inscribed on it. Instead, it will be Nick Enlow's.

The 2008 Indiana University-Purdue University Indianapolis graduate is trying to hawk his diploma on eBay this week in hopes of paying off a student loan debt -- and as a warning to would-be college students.

Check out the eBay listing for the diploma.

"Going to college made my life worse," Enlow said Wednesday from near Jacksonville, Fla., where he lives. "That is something that I don't keep to myself. I tell everyone."

His line of thinking isn't the kind that Purdue officials find amusing, nor are they too keen on the auction itself.

But Enlow, 29, said he considers himself stuck in indentured servitude to Sallie Mae, his lender, because he is unable to get a decent-paying job with his current degrees to start paying a $470 monthly student loan bill. In addition to the Purdue diploma, he obtained a philosophy degree from IU through IUPUI. That one is not for sale.

The eBay sale is part stunt and part hopeful act of desperation that an "eccentric millionaire" will pick up the tab. Either way, the Indianapolis native is serious about kick-starting conversations on the worth of a college education and how it can be paid off.

"The universities are handing out too many degrees that have zero real-world application," Enlow said. "It seems to me, almost any major in the humanities or liberal arts will not gain you employment with a bachelor's degree."

Enlow admits to not having a clear post-college career path. During school he fell in love with learning -- reading classics and learning history -- and he assumed that after earning a diploma a job would come easily.

"I think that some of us still believe that when we walk across the stage and get that diploma that we are going to have some type of social status and businesses are going to look at us differently," he said. "But that is not true."

Purdue officials somewhat agree with Enlow, but they emphasize that skills learned can help lead to success.

"A degree in the liberal arts is not an automatic ticket to a job, but then again, no degree is," said Irwin Weiser, interim dean of Purdue's College of Liberal Arts.

"However, studying any of the disciplines in the arts, humanities, or social sciences prepares students to be successful because they learn to think creatively, critically and ethically, and to communicate what they think effectively."

Purdue officials also noted that Enlow's degree was issued by Purdue's School of Science at IUPUI, not the College of Liberal Arts on the West Lafayette campus. Purdue's department of psychology will become part of the new College of Health and Human Sciences in July.

Enlow is unsure how he will pay off his debt. The $36,000 is considerably above the national average. Enlow said he would like the government to offer more opportunities for graduates to work in communities as a way to pay off higher education loans.

"I always expected that number," he said.

"The number itself does not surprise me. The inability for me to pay it off is surprising."

A report last year from Project on Student Debt found average debt levels for 2008 graduating seniors with student loans rose to $23,200 -- a 24 percent increase from $18,650 in 2004. Those who graduated from IUPUI in 2008 with student loans had an average balance of $25,253.

Edie Irons, a communication director with the organization, said students should begin planning for their future debt while in high school and through college. That includes figuring out how much they will need to borrow and whether that amount will be feasible to pay off with their job expectations.

If graduates can't pay the monthly amount, Irons said, they should research options such as deferment, forbearance or income-based payments before talking to their lender.

Enlow is working as a substitute teacher and living with his fiancé, who is working for Teach America. He is considering how to transition into a full-time teacher and how he would talk to students about college.

"My idealism is crushed," he said.

The eBay auction ends Saturday. Bids for the used "authentic" diploma start at $36,000, plus $3.50 shipping.

http://www.jconline.com/article/20100527/NEWS0501/5270341/Up-for-bid-1-diploma-for-36K

Why Student Loan Debt is Soaring into the Five and Six Figures

Madeleine Kuhns
May 19th 2010 at 9:00AM

Melanie Bradshaw was determined to go to New York University, her dream school: so much so that when she was accepted, she ignored the more substantial aid packages at other schools to attend NYU, which offered her no aid. "For a while I was worried that I was making the wrong choice, because who can really afford this tuition? Obviously I went for it, despite the issue," she wrote in an e-mail.

NYU costs a staggering $49,190 year when tuition, housing, books and other fees are totaled; Bradshaw, a sophomore, will have around $30,000 in debt come graduation. Her parents -- who took out $23,000 in loans per semester to pay the rest of her tuition -- will also be in debt. That's right: Bradshaw and her parents will shoulder a whopping $209,600 in debt by the middle of 2012.

And she's not alone. In 2008, according to The Project on Student Debt, 72% of students from private non-profit universities graduated with an average debt of $27,650, an increase of 29% since 2004. That's $1,000-plus over the average yearly tuition at private institutions and almost four times the average cost of in-state public tuition. In other words: It will mean more than a decade of loan payments, interest charges and income drain for the average collegiate. And that's assuming the graduate lands a job in his or her chosen field. For those relegated to the ranks of barista gigs and dog-walking work in this Great Recession, the debt sentence will likely stretch even longer.

Why do private colleges cost so much more than public colleges? More importantly, where does all that money go?

"There is a culture in higher education that equates money and spending and growth in spending with a high quality product," says Jane Wellman, president of The Delta Project, whose 2009 report "Trends in College Spending" refers to institutional spending as the "black box" of education finance. The actual costs and spending at educational institutions is not that well understood, says Wellman. "The market's been telling [colleges that] people would rather pay more for what they believe is a higher quality product than to see costs cut at the risk of service."

According to a 2008 Delta Project report on the growing imbalance in higher education finances, private institutions spend more than twice what public institutions spend for student services, such as admissions, career counseling, student clubs and financial aid administration. Where private institutions spend $6,655 per student for instruction, they spend almost double that on all the other services: $10,598 per student. Non-educational costs make up $1,208 per student, with private colleges spending more than $18,000 per student, twice what public colleges pay, and forcing more private college students to take out private loans.

"A lot of students get set on their dream school and become very insistent. It's this school or nothing," says FinAid.org founder Mark Kantrowitz. However, "if you find yourself being forced to borrow from a private loan program, that's often a sign that you're over-borrowing and perhaps you'd be better off at a less expensive school."

More colleges, according to "Trends in College Spending" are shifting costs away from education and related services, and more toward student services, which are then used to attract students willing to pay full tuition or the "sticker price." These students' tuitions allow schools to subsidize the costs of need-based students who could not afford it otherwise. That leaves students in the middle (as in middle class) to pay the newly-inflated full freight.

"If [colleges] didn't raise their tuitions they wouldn't have to spend so much on student aid. They're sort of chasing their tail," says Wellman.

A professor's average salary is $80,368 a year, while administrative salaries are higher -- NYU's president John Sexton made $1,265,110 in 2007 according to the American Association of University Professors -- but even cutting those salaries a la Mayor Bloomberg of New York, who's annual salary is one dollar, wouldn't put a dent in tuition, says Kantrowitz. Schools should focus on cutting energy costs by closing campuses over breaks or transitioning to a four-day class schedule, he says.

A small percentage of students have found a solution, such as Jorge Alvarado. As a sophomore neuroscience major at Amherst College in Massachusetts, Alvarado attends one of the 71 schools in the country that is part of a no-loan commitment initiative, where colleges replace loans with grants in financial aid packages for low- income students. Students are still expected to pay an expected family contribution (EFC). Consequently, half of Amherst students graduate with an average debt of $12,603, according to College Board, far less than the national average, and paltry when considering that one year at Amherst costs $52,778.

Having only to take out federally-subsidized Stafford loans to cover his EFC, Alvarado will have less than $10,000 in debt at graduation. "The financial aid package, to me, it was integral to picking what college I would go to ... if Amherst didn't offer me a package I probably wouldn't have come here," Alvarado said.

"Those schools are sort of modeling a kind of transparency for consumers that it would be better if everybody had," says Lauren Asher, president of The College Institute for Access and Success. She says this initiative is the best way for private colleges to help low income students in not borrowing over their limit. Unfortunately, not all colleges have big endowments like Amherst's, which is valued at more than $1.3 billion, or about $770,000 per student. And even then, many colleges see endowments as an unstable revenue source.

Until they do, students will just have to keep paying. "If you look at the cream of the crop, there is a financial benefit in attending those schools in terms of getting better paying jobs, but it doesn't necessarily compensate for the higher cost of those institutions," says Kantrowitz.

For students like Bradshaw, it does; even if the Great Recession may dim her employment chances, it hasn't put a damper on her enthusiasm. The debt she accrues represents the future bet she's willing to make to attend the college of her choice. "I really feel like I spent more to get more," she said. "Hopefully I'll be qualified for a decent-paying job, so being in debt won't be the end of the world."

http://www.walletpop.com/blog/2010/05/19/why-student-debt-is-soaring-into-the-five-and-six-figures/

Student Debt Already a Crisis

Times Colonist May 30, 2010

There is increasing evidence that Canada's student loan program is a train wreck waiting to happen. We noted last Sunday that post-secondary students across the country owe more than $13 billion in outstanding loans.

Many are in over their heads. One out of five students who attend a public university cannot repay what he has borrowed.

The situation is even worse at private career colleges. There, 40 per cent of students will default on their debts. At some vocational schools in B.C., loan delinquencies exceed 75 per cent.

These are well beyond the default rates for business loans and residential mortgages. Part of the problem is easy money. Students with limited resources can borrow huge sums, virtually no questions asked.

For example, kids whose family income is $25,000 can borrow $40,000 for a four-year degree program. Pretty much all they need is proof of enrolment and a clean credit history.

Yet what chance do they have of paying it back? The Canada Student Loan program charges interest at the prime lending rate plus five per cent. A loan that size adds up to monthly payments of $360 for 15 years.

Of course, if the education that students receive is worth what they paid, perhaps they can make good on their debts. Yet is it?

The staggering default rates at private vocational schools would certainly suggest otherwise. But even at public colleges, there is room for serious doubt.

Tuition rates at Canadian universities have grown at double the cost of living for at least 30 years. In just the past decade, fees for a four-year arts or science degree in B.C. have more than doubled, from $8,800 to $20,000.

Add in room and board, books and other charges, and an undergraduate degree costs about $60,000. Professional colleges like law and medicine charge $90,000 or more.

It's possible these increases have been used to improve the quality of instruction. Yet there's limited evidence for that. Between 1987 and 2006, the number of full-time students at Canadian universities grew 57 per cent while the number of full-time professors grew only 20 per cent.

That's why so many courses nowadays are taught by graduate students or teaching assistants, rather than faculty. It's why class sizes have ballooned and multiple-choice exams have replaced written essays. Students are paying more but getting less.

Universities are able to charge the limit because they know kids can borrow the money -- not necessarily that they can repay it. The huge run-up in tuition rates has been matched, step for step, by burgeoning student debt.

The situation resembles what happened with mortgages in the U.S. There, for a while, house prices soared because buyers got easy credit.

The bubble eventually burst when mortgage holders could no longer afford the huge monthly payments. The housing market collapsed, taking with it a large chunk of the banking sector.

The only reason Canada's student loan program hasn't gone the same route is that the amounts are not as large and the federal government quietly writes off the losses. But the personal damage inflicted is just as severe. Young people begin their lives hopelessly in debt, or worse, effectively bankrupt. And high tuition rates are being propped up by reckless lending policies.

We need a student financial assistance program, recognizing that even with part-time work and family support, post-secondary education is beyond the reach of too many young people.

No one should be denied an education because his or her parents lack money. But student loans in their present form have made education less affordable, not more.

With tuition rates now in the stratosphere, it's time to rethink post-secondary financing. And the place to start is on campus. By one means or another, we need to ensure that students get value for their money.

http://www.timescolonist.com/business/Student+debt+already+crisis/3089485/story.html