Read This Post BEFORE You Take on a $200,000 Student Loan

In light of my recent posts, I thought I would take an opportunity to take a look at a student loan. The situation I looked at recently was a woman who owed $200,000 in student loans. What’s mind-boggling about that amount is that EVEN with no interest financing, her monthly payment would be…

Now, here’s that same loan with a 5% interest rate:

If you graduated from college with a $200,000 student loan, and you wanted to pay it back within 5 years, your annual payments would be over $45,000. If your goal is to pay it off in 10 years, your annual payments are around $25,000. That’s a lot of money at a time in your life when you don’t have a lot of money.

Of course there are variables in these numbers. The amount borrowed is pretty high at $200,000. Many college students will get away borrowing much less than that. Interest rates will also vary. It was my goal to give an estimate.

Every college student should take a good hard look at those two graphics BEFORE they accept a student loan. I’m planning more college-related posts in the future.

Question of the Day: Should Student Loans Be Discharged in Bankruptcy?

My last coupld of posts drew quite a few comments. A couple of commenters made mention that student loans can’t be discharged in a bankruptcy. I was curious about this so I did a little research. I found this mention of student loans and bankruptcy on the Sallie Mae website:

If you’re having serious trouble paying back your debt, bankruptcy is not an easy out. In fact, bankruptcy should be considered an absolute last resort. And, after all your effort, student loans are not normally included in a bankruptcy filing.
Unless you can show that your education loan payment is an “undue hardship” on you, your family, and your dependents, your student loans are ineligible for cancellation (discharge) in bankruptcy.

It is difficult to prove “undue hardship” unless you are physically unable to work and there is no chance of your making money. To discharge your student loans under this special case, you must file a separate motion with the bankruptcy court and present your situation before a judge.

I have big issues with making it easier to forgive/discharge student loan debt (much like I have issues with discharging credit card debt). The only way I could see making student loan debt dischargeable is to also take away the person’s degree and any career positions dependent on that degree. In other words, NO…I don’t think people should get out of paying back their student loans. Harsh? Not in my opinion.

The best solution is to educate kids BEFORE they get themselves into trouble. Some sort of personal finance/college planning/life skills course should be required for all high school students before they graduate.

Follow-up to Yesterday’s Post – Government Involvement in Education

Reader and commenter, Veritroth, left the following comment on yesterday’s post, This Would Be Funny if it Wasn’t so Pathetic:

Being on the topic of student loans, I’m curious what your position is on student loans and government involvement in education. I’d imagine you’d prefer less involvement than we currently have, but I was hoping to you could elaborate a little on your thoughts.

Although I’m far from an expert in this area, I can say that I think government involvement has helped make college more expensive. Colleges and universities have basically been able to put any price they want on the cost of education. They can do this because they know that the whatever the cost, the government will provide the funding. Had this source of funds not been there, colleges might have had to do some belt-tightening. Am I correct? I don’t know. It’s my opinion of the matter.

Regardless, government involvement in education in an effort to make college more affordable has had the opposite effect. What they should have done instead was force colleges to post their budgets online for all to see and scrutinize. Put some heat on the university to show us exactly why the cost of an education is outpacing inflation. That information would go along way towards keeping college costs in check.

What say you, AFM readers?

This Would Be Funny if it Wasn’t So Pathetic

One of my facebook friends posted a link to a person’s website asking for donations to help them pay off their nearly $200,000 in student loans. I visited the website and found their story on their About page:

I chose to attend a top 70 school — and why not? It had everything: prestige, great location, typical campus, every major under the sun… the full college experience.

Five years later I am $200,000 in debt, as my education did not lead me to the career that would help pay off my loans. Also – I am only 23.

What’s even more, Sallie Mae [student loan corporation] won’t allow me to consolidate my loans, repay the loans based on my income, or defer again (as I’ve already deferred for 6 months).

My monthly payments to Sallie Mae are at a cool $891, and next November, 2011, will rise to a mere $1600. Not to mention the 5 other lenders [including federal] that I pay per month…

They got their fancy education and now they expect/want people to help them pay off their massive loans.

Did this person not put pencil to paper and perform a couple of calculations first before they decided to attend this particular school? Judging from their “It had everything: prestige, great location, typical campus, every major under the sun…” statement, I’m going to say no.

I’m sorry but I have a hard time feeling sorry for this person.

Quote of the Day (from Jean Baptiste Say)

The title was not meant to rhyme.

Check out this interesting quote I came across today by Jean Babtiste Say in 1832:

“…the encouragement of mere consumption is no benefit to commerce; for the difficulty lies in supplying the means, not in stimulating the desire of consumption; and we have seen that production alone furnishes those means. Thus, it is the aim of good government to stimulate production, of bad government to encourage consumption.”

In other words, emphasizing consumption over production is like putting the cart before the ox.

This quote is interesting to me because of what we are seeing today. From President Bush begging people to go spend money after 911 to the Obama admistration increasing jobless benefits to the unemployed, when the focus is on consumption rather than production (job creation), we hurt the economy.

Thanksgiving Week

It’s Thanksgiving week. The kids are out of school this week. My wife will be off work at least Thursday and Friday. We are staying local this year, which is nice. Last year we drove to Kansas.

We hosted Thanksgiving at our house three years ago. It was my dad’s last Thanksgiving before he passed away in March of 2008. Thanksgiving was his favorite holiday. He hated it when people called it Turkey Day. I don’t care for that term either.

The day after Thanksgiving marks the opening of the Christmas season. Are you ready? My wife did most of her shopping online (through Amazon) last Friday. She’s pretty much ready. I really only have to buy gifts for one person each year (my wife). I’m not ready. I don’t procrastinate but I do have a hard time figuring out what to get her each year. I have some ideas but I’m not at liberty to share…lol.

What about you? Are you ready? If not, will you be doing your shopping online or at the physical store? Are you planning to spend more/less/the same as last year? We’ll probably spend about the same as last year, which will probably be around $2,000 by the time it’s all said and done (gifts, parties, etc.).