How does this relate to student loans?

Exorbitant student loan debt has killed my passion.  I was just thinking the only real passion I seem to have left is the hatred for student loan debt (or at least that’s how it feels in the “down” moments; like right now).

They have turned me into a pessimist.  Pessimists are not successful, and even the rare one or two who become successful don’t have the ability to see how great it is.

You went to school (or are going to school) because you wanted to be successful, but the very thing that is helping you pay for school will contribute to your lack of success.  Your money will go to pay the interest.  Your motivation will decay like your finances when you don’t even have enough extra money to make interest only payments.  Your personal life will be stressed and suffer because of financial stress.  Everything you’re going to school for is obliterated by the financial turmoil that awaits.

Beware of the death grip of student loans and don’t let them kill your passion.  They are like a sack of bricks tied to a drowning sailor’s ankles.  All of the money you spent learning to swim won’t do you any good now that you are sinking with the debt.

On that depressing note, I’d like to switch to an uplifting hope that I have learned that eases the stress caused by the mounting debt.  Here are some ways to get your passion back to life.

Focus on Helping Others

The first thing to do when you are in a depressed rut is get the focus off of yourself and start thinking about others.  Get out and help someone.  Find someone with a bigger problem than your own and contribute to helping them.  If finances are your biggest worry then you are lucky.  Some people have sick family, others are in hostile environments, and still others are in potentially deadly situations.  Focus on helping those with greater needs than your own and your financial problems will be put into proper perspective.

Ignore Your Loan Problems

Stop trying to solve the problem of your debt constantly.  While it’s good to search for solutions and long term strategies to lower your loan burden, it’s also good to take a moment every once and a while and forget about your problems.  One study finds that a wandering mind is an unhappy mind (CBS News).  Letting your mind constantly wander towards the negative possibilities in your life like student loans is a source of stress.  It also takes up the thought processes that may be focused on other passions.  Focus on the day to day activities and your passion may find time to be reignited.

Vent, Complain, and Tell Your Story

As mother used to always say, “Don’t hold it all in.”  Keeping your frustrations bottled up is not a good way to live.  Talk to someone about your problems and complain to those who are nice enough to listen.  You might be surprised to learn you aren’t the only one going through rough times.

All three of these methods of re-igniting passion are goals of this website.  You can contribute here by sharing your story, venting your frustrations, helping those who are entering into the same mistakes you made, and more.  The simplest form would be commenting on, or sharing this and other articles.  Those elite few of you who are more burdened to help can register and share your own stories.

As a borrower you must look at more than just interest rates, you must also look at payment terms, cosigner obligation, and penalties for non-payment.

So you need $500 for personal expenses while your at school, here are some of the considerations that come into play:

Interest Rate

Most people don’t get past this point, so they think, “hmm, my student loans have a low interest rate, I can take out a slightly larger student loan next semester, get a small refund from the school and use it on personal expenses.”  They ignore the fact that the repayment terms may be less than desirable, that it might also have an effect on cosigners, and that ultimately if their personal finances come crashing down, there is no debt protection like other loan types might offer.

More importantly it allows a habit to start forming.  What was once a small need for some personal expenses becomes permission to access easy money instead of using financial discipline.  Why take out $500 to cover the basic personal expenses when you can take out $1000 and go to movies, party with friends, go out to dinner, etc?  It’s a vicious cycle, and its harms the college students ability to respect the laws of finance and the value of money.

Payment Terms

The quicker you pay something off, the less interest you will end up paying.  Student loans are usually paid over 10 to 15 years.  Personal loans may be capped at 5 years.  In theory, credit cards could go forever.  A student should at least take this into consideration when obtaining a loan.  You may not have to start repaying your private student loan for up to four and a half years: in some cases more.  All that time interest is building.

Cosigner Obligation

Are you bringing other people into debt with you when you borrow personal expenses?  You can read more on the effect debt can have on cosigners here.

Penalties for Non-Payment

I often refer to private student loans as the most toxic form of debt.  They are too easy to get, and have the worst consequences if not paid.  Why would anyone what to add their most dangerous debt?  Consider what would happen if something happens and you aren’t able to pay back your loan.  You will find that all debt, with the exception of student loans can affect you and your financial livelihood for up to 13 years.  Student loans will last a lifetime.

There isn’t a single correct solution for every student, but careful consideration of all factors is the only thing that will help you make the right decision about which loans to choose.  Quite frankly, $500 a month isn’t that much money, getting a job to pay for personal expenses is better than any loan will ever be.

Usually when people say that everything in a certain group is the same they are uneducated on the topic.  It’s also known as stereotyping.

You can’t get a rental car at most companies unless your 25. You can’t purchase alcohol until you are 21. You can’t buy cigarettes unless you are 18. You can’t get a hotel room at most hotels until your older than 21. Our country’s common law practices state that individuals under the age of 18 don’t even have the capacity to enter into most contracts.

We think, and rightfully so, that there is a lack of maturity in minors… that they lack a required experience with life to safely enter into these types of life decisions.

Ready for the funny part?

Student loans have the capacity to ruin a person’s life financially, yet we make special provisions so minors can enter into potentially lifelong contracts. We don’t even hold minors fully responsible for the consequences of their actions if they were to commit a crime. It’s rare that a minor gets significant jail time for almost any offense. But the life sentence of inflated student loan payments is a consequence that far too many “past minors” have to serve.

As current law stands there is no pardon for a poorly chosen student loan. Bankruptcy law does not protect borrowers against any student loans, both federal and private. You might argue that yes, there is a way to get rid of private student loans in bankruptcy, if you prove undue hardship, but…

Who can afford a lawyer when they are dealing with a mountain of debt? Furthermore, who can afford a heavy legal battle to prove something that is considered, “almost impossible.” I don’t have to guess because the numbers are out there. In 2008, the successful discharge rate was 29 out of 72,000. 29 people successfully got rid of their student loan debt in bankruptcy out of the 72,000 people that applied. FastWeb.com

Luckily there seems to be some movement to help those who are truly in need, so make sure your doing your part to voice your opinion.

It’s easy to go from ironic laughter to tears when you really think about it. We protect our teenagers from everything (and seek protection from them as the case may be), but we can’t protect them from one of the most financially devastating forms of debt?

Don’t drink
Don’t smoke
No hotel room parting
No reckless driving

…and above all else…

NO WITHDRAWING STUDENT LOANS

…until you are old enough to make a wise decision.

Don’t be fooled into thinking that the loan companies treat cosigners any differently than the primary borrower.

The loan companies require a cosigner because they believe that given your lack of financial history, that you will not repay your loans.  They look to another borrower with a credit history to “guarantee” payment.  The truth is, your cosigner is equally as responsible for the debt you withdraw.  The loans will look exactly the same on each borrowers credit reports, will have exactly the same effect on both borrowers when future credit is desired, and have exactly the same legal backing should legal action be necessary.

Some loans may even require the cosigner to pay even after the primary borrower dies!  Here is a recent article from The Wall Street Journal. When Student Loans Live On After Death

The problem is most parents (cosigners), don’t see it as such a severe obligation.  Many put an abnormal amount of trust in their student because they want to see him/her become successful.  They overlook the the in-depth research that would seem obvious if they were taking out a loan themselves.  This paves the way for troubled, financially stressed relationships with family, friends, or whomever is “nice” enough to cosign for you.

Most parents want their children to get an education and think, along the same lines as their children, that the education will “definitely” result in an income.  And that the income will definitely be able to pay the student loans.  So parents sign, and are able to forget for a few years while their child is in school.

As you will learn as you get older, “life happens.”  For the sake of argument, let’s say something happens in your life where you are not immediately able to pay for your loans, so you quickly use up any gracious forbearance or deferment that is offered by the loan companies.  Now what?  The loan company starts making more and more phone calls to collect your debt.  Your parents receive phone call after phone call while you crunch the numbers and figure out there is nothing you can do to stop it.  Each phone call is filled with threats of legal action, rude associates, and pencil pushers who say there is a million options for relief, but they just can’t seem to find a program for you.  Your parents are getting these calls too!  The fake and eventually real collection letters are being sent to your cosigners too.  You quickly become the focus of your parents stress and it seems helpless.  It’s not fun!  The personal stress this can cause can literally be  painful.  If your currently in this situation it feels pretty hopeless, and one of the goals of this site is to provide relief in as many ways as possible.

Not everyone ends up like that.  The above example is harsh, so lets make it a little more reasonable.  Lets assume that you can pay your loans after a small time of forbearance, but you can all you can afford is interest only payments.  Your mother goes to refinance her house and finds out she can’t get the best rate because her credit score isn’t high enough.  After some explanation she comes to you with some half understanding blame.  You both wonder why, but the only real solid piece of information you know is that the banker told your mother it was the student loan causing the problem.  You didn’t do anything wrong.  You were paying your loan on time.  What happened?

Here is what happened:

A lesson in credit: the current balance on a loan compared to it’s original balance is a factor that determines credit worthyness.

When you took that private student loan out four and a half years ago it was for $10,000 (replace this number with your loan value).  During the four years spent in college and the six months of forbearance this loan inflated to $12,400, (for you loan experts this estimate is for 52 months at a rate of 5% compounded monthly, so I’m being generous here).  Since your currently paying interest only your balances will remain the same, and you will have a loan on your credit report that is 124% of its original value.  Your cosigner’s credit report will show that same loan.  To a banker or a computer crunching credit score numbers this is,”a borrower who has had four and a half years to make progress on a loan, but they have not.  Not only that, but the loan balance has started getting out of control.”  The debt-to-income ratios will also look worse.

All math aside, when a lender looks at your mothers credit report, it looks like she owes more than she originally borrowed.  The lender is looking for loans that are being repaid, and on paper this student loan looks like it’s not being repaid.  It reflects poorly on the credit score and it encourages a lender to be more cautious about lending to your mother (both situations that will make your mothers life difficult, and consequently your own).

There’s a world of hurt with cosigners that I could write books on, and who knows maybe I will, but the point is this:

• Students - understand that your cosigners are committing to an incredible act of trust and things can get very difficult very easily.
• Cosigners - treat student loans as if they were a debt you were borrowing all by yourself: that’s how the banks will.

Please comment with your story, and feel free to complain like nothing else.  Your efforts will help you vent, make you feel slightly better, and could possibly help prevent future victims of these questionable lending practices.

You can see my story on the About Matt page.

Unfortunately, real life is a part of the equation when you take out a loan.  You may not get a job straight out of school.  You may have to postpone your payments; you may even have to forbear/deferr your loans for an extended period of time.  When this happens, you can toss those fun little spreadsheets and calculators out the window.

All the post college delays will cause a swift increase in your monthly payment amount, while life continues to throw curve balls that effect the income you will have available to pay those student loans.  You may have expected to become a doctor, but instead found out that nursing is your cup of tea.  You may meet someone and decide that your career is no longer important to you, but rather time with that person should be the priority.  Regardless of who you are, life will bring you unexpected circumstances that you have no way of predicting and those circumstances will have an effect on your income.

Don’t let an optimistic student loan calculator fool you.

In order to get an accurate estimate of what you can afford to borrow for your student loans you need to answer a number of questions.

Questions to ask yourself when taking out a student loan.

What if I can’t get a job as soon as I graduate?
What happens if I switch majors to a lower paying career?
How might my situation change over the next four years?
How will I change over the next few years?
If everything my parents tell me were to actually come true, what kind of financial situation will that put me in?
What if my education becomes obsolete?
What if the economy tanks and I can’t find work for an extended period of time?

You’re probably thinking, “A lot of these questions don’t have specific tangible answers,” and you would be right.  The point is, be extremely conservative because you have no idea what your life is going to look like in four years, and your future self will be disappointed in your past decisions if you don’t take that into consideration now.  A well known bit of wisdom that I have learned over the years is, you have no control over what life sends your way, but you do have control over how you react to it.  You will react to things better if you have some advanced preparation.