I was doing my normal Internet browsing last week, scanning a large number of articles looking for an idea for my next blog post, and stumbled across a piece that really got my attention: An article on student loan horror stories, specifically a section of which that was titled, "My Music School Cost Me $183,000." The young man being featured in a portion of the article was an aspiring musician that had attended one of the top music schools in the world, Berklee College Of Music, and graduated in 2007. After he graduated, his monthly student loan payments were $1,400. He says that he was receiving collection calls several times per day, but simply did not have the money to make the payment. The next thing I read made me want to cry -
"I pay more in student loans right now than I do in rent," he says. His parents co-signed his loans, which is another burden he feels. "It's the most depressing thing. I can't even off myself, because then the debt goes to my family."
Here is young man, fresh out of college, sharing with the world that he has considered suicide, but then realized that even if he were to die the debt would go to his parents. The sad truth is that his analysis is correct. His parents co-signed the loan and they are jointly responsible for the debt. I did a live show recently with Alan Collinge of Student Loan Justice. If you did not hear this interview live, you will be shocked when you listen to the replay. We are hearing more and more stories at ChristianMoney.com about parents and grandparents co-signing for college loans and ending up in financial hell.
We all love our children and want to help them in any way that we can, but co-signing for their debts is not a wise decision. Student loan collectors are not limited by the Fair Debt Collection Practices Act and there is no statute of limitations on a student loan. Student loans can not be wiped out in a bankruptcy.
What Happens When A Student Loan Goes Bad
One monumental mistake is only considering the starting principal balance of a student loan. Once interest, late fees, and penalties are factored in, the amount owed can be multiples of the original amount borrowed. This is why I am reading more and more articles with examples of individuals owing well over six figures on their student loans.
Many co-signers don't really view the debt as their own. They don't understand that they may end up receiving multiple calls each day at their home and even at their work, being sued, having their wages garnished, and even their Social Security income taken through the collection process.
This article has one purpose, to be a warning against co-signing for student loans; additional articles that would be useful are listed below -
Student Loan Rates Doubling?
The interest rate doubled on July 1, 2013 from 3.4% to 6.8% on federally subsidized Stafford loans. The Congress is now working to come up with the votes to extend the government subsidy another year, but at this point there is no certainty it will pass.
What To Do If A Student Loan Has Gone Into Default
This is a somewhat involved topic, but I do want to address a program that many are unaware of called Income Based Repayment. The program became available in 2009 and allows for reduced payments based on a multi-tier formula. For most people, this will make your maximum payment no more than 10% of your gross income. The bad news is that this program does not work for Parent Plus loans. If you have already defaulted on your loan, you will do have an opportunity to rehabilitate your loan by making nine on time payments. There is a ton of great information on this topic over at FinAid.
If you have a student loan horror story of your own, or some ideas or solutions that you would like to add, please use the comments section below and we can start a conversation.
Helping you make the most of God's money!