Student Loan Debt

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easy to avoid borrowing money for college because the costs have risen so astronomically.  It now costs on average about $50,000 per year to go to a private college and about $20,000 to attend a state university.

Know the Dangers of Defaulting on Student Loans

There are huge penalties for going into default on student loan debt.  Not only are the financial penalties high, but the emotional stress can also be enormous.  Ever had a collection agency come after you?  This is not fun, especially when the collection agency for a defaulted student loan knows it has the defaulted borrower over a barrel.  The borrower can never have his debt discharged, even in a bankruptcy proceeding.  They also know full well they have the right to garnish your future wages as well as tax returns and even disability payments that might be payable to you.  For the pleasure of dealing with them you also will have about 25% of the amount of all you borrowed plus interest added to what you owe.  This does not count the numerous penalties you will be subject to for late payments and going into default.  Many borrowers who let their loans default are later shocked to find that they owe 3-4 times the amount they originally borrowed and that there is no way out of this debt.  One last kicker, if you went to school and have obtained a professional license, your state will probably cancel that license if you have student loan debt in default.  So that means you cannot work in the profession you went to school for in the first place.  Any student who considers borrowing money should know the consequences of defaulting on student loan debt.  Of course prior to obtaining the loan and going to school default is the last thing on their minds.  But be aware it was also the last thing on the minds of the 20% of student loan borrowers who borrowed $15,000 or more after 10 years and who later defaulted.  This adds up to millions of people, and some get so desperate they have fled the United States to escape their student loan debt, and there are a few who have even committed suicide.  

Be Wary of For-Profit Professional Schools

There are many of these types of schools, and they include private flight schools, culinary schools, cosmetology schools, photography schools, chiropractic schools, etc.  These types of schools have a bad history of going out of business and leaving their former students stuck with their student loan debt and no useful education.  Also, a lot of these schools are not accredited, so the student cannot get a federally backed student loan to pay for them.  They are forced to use private student loans with high interest rates.  These rates can average 12%, and 18% is not unusual.  If you are carrying substantial debt at those kinds of interest rates, you are probably in financial trouble.  So be certain the school you wish to attend has a solid track record.  And be certain the profession you are targeting is what you really want to do for a living.  I recently heard a person call into the Dave Ramsey radio show whose husband borrowed about $15,000 to go to some real estate school, and shortly thereafter he decided he didn’t really want to work in real estate.  Now they are burdened by this debt and can’t afford some things they need for their family.

Only Borrow What Your Starting Salary Is Likely To Be

If you keep this in mind up-front, your chances of eventually going into default and getting into big financial difficulties is greatly diminished.  If makes no sense to spend $50,000 to go to culinary school when your starting salary is likely to be only $15,000-20,000 or so. 

Always Go For Federally Backed Loans and Avoid Private Student Loans

The interest rates for Federally backed loans are substantially lower than those for private student loans.  This means saving many thousands of dollars in payments over the life of the loan.  In addition, federal loans come with a number of rights for the borrower that private student loans do not have, such as the right to defer payments under certain circumstances, or the right to set up a repayment plan based on actual income if you must suffer through a period of financial hardship due to job loss, illness, or some other reason.