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College loan debt plagues Valley students
By ASHLEY LUTHERN
YOUNGSTOWN — After signing on the dotted line, Lauren Linville realized that she had agreed to an interest rate on her student loan that was more than double what she thought she would have to pay.
“There were low rates advertised at about 5 percent, but when I didn’t have a co-signer on the loan, the rates shot up to 12 percent,” said the 20-year-old Youngstown State University junior from East Liverpool.
Linville attended Kent State University her freshman year and was, in her words, “getting gypped” on her student loans.
“Kent only promotes two banks, but YSU works with 18 banks that are all competing for business, and I was able to switch to a better loan with a lower interest rate,” she said, adding that was one reason why she transferred to YSU.
Now as college students prepare to go back to school, some may decide to finance their education using federal and private loans, like Linville has.
Although she is working while in school to pay off her loans, if Linville still owes money after graduation she will become part of the 65 percent of students in Ohio who leave four-year public and private institutions with debt that averages $20,525, according to the Project on Student Debt. The nonprofit research organization is funded by the Pew Charitable Trusts, the Rosalinde and Arthur Gilbert Foundation, the William and Flora Hewlett Foundation and the Bay Tree Fund.
Loan volumes have multiplied dramatically at YSU, and it’s becoming commonplace to default on student loans, said James Stanger, director of technology who oversees loan reports at YSU.
“We’re running into this more and more every day. I look up a student’s aid and think, ‘Oh my God,’ because they get in a mind-set that once they’re in debt $30,000, what’s $5,000 more,” he said. “It’s that rationale that leads to mounting debt and a scary situation.”
The debt piles up quickly if students haven’t done their research before signing the loan.
“With these loans, you have to look at the small print very carefully, concentrating on the interest rate and the fees,” Stanger said.
Companies may advertise that they have a low interest rate, but because most of the rates are based on credit, the interest rate can actually be two or three times the advertised level if someone has poor credit, Stanger said.
“Students also need to know if the interest rate is fixed or variable. If it’s a variable rate, then the interest rates will increase at certain time intervals, depending on what’s in the contract,” he said.
Another tactic is to compare loan offers.
“Private lenders mail applications to the home, have ads during basketball games and other promotional things like that, and students just get sucked in. But they shouldn’t just go with the first ad that they see,” he said.
Having learned from her first loan, Linville compared rates on her other loans to get a better deal and is working to get rid of her debt.
“I know people who just accumulate debt, but I’m concentrating on paying mine off now,” she said. “I have two part-time jobs, one of which I use for rent and the other I use just for making payments on my student loans.”
Linville works full time in the summer in the Army Reserve and said the majority of her pay will go to student loans.
“I’m working really hard, but this is something that I always worry about,” she said.
For those who wait until after graduation to begin making payments, there is a general “grace period” of about six months. Service companies prepare the student for what will happen in a couple of months when payments are due, said Greg Stringer, senior vice president of Great Lakes Education Loan Services.
“Private loans are not sponsored by the federal government; they are like other consumer loans,” he said. “We work as a processing agent for the banks who give these loans. We also collect payments and pursue borrowers who are delinquent.”
Eventually, if someone continues not to make payments on a loan, service companies, including Great Lakes, will sell the loan to an insurer. Those insurers become the contact agency for borrowers and frequently hire outside debt-collection agencies, Stringer said.
After leaving school, a borrower should continue to negotiate with the lender.
“If someone knows that they can’t make the full payment, they should call and make a new arrangement,” Stanger said. “The lenders want the money to keep coming, and they’ll even go after your earnings and garnish your wages to get it.”
It’s better to lower the payments than stop paying at all because student loans cannot be discharged through bankruptcy, unless a borrower qualifies for a hardship exemption, said Atty. Todd Horlick, who specializes in bankruptcy law.
“When you have a student loan, it’s like you owe God money,” he said. “Only in extreme cases, for example someone becoming a paraplegic and no longer able to work, can hardship be determined and bankruptcy effective.”
Horlick added that many people are still convinced that if they file bankruptcy that their student loans will be discharged, which isn’t true.
“We make people sign written statements that clarify that we, as attorneys, have told them that they still owe their student loans even after declaring bankruptcy,” Horlick said.
Going to college is the first major financial decision an individual makes and, if funded by federal or private loans, it is something that will affect them long after graduation, Stanger said.
“Students are so focused on getting to college, that we’ll keep borrowing money to achieve it, but we really, really need to read the fine print on these loans so that we aren’t paying them off forever,” Linville said.
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Comments
It is very difficult to "do your homework" when looking for a private loan for college. Typically, the rates advertised are only the ones that are available to the top 1% of borrowers with the best credit rating. Shopping around can actually result in lowering your credit score, as each application costs you 5 points on your score. Unlike auto loans or home mortgages, credit reporting agencies do not give you a window where you are not penalized.
Many students and parents have been shocked to find that they are being turned down for private college loans this year, even though they have been approved in the past. Lenders have tightened their credit requirements and it is no longer a borrowers market.
If applicants are confident that their credit scores will be acceptable (over 750) to a private lender, what they can do is look for other benefits that can make a loan more attractive, such as rate reductions for auto-debit, cosigner release after a minimum of on-time payments, forbearance terms, or flexible, extended payment plans.
Although consolidation and refinancing are difficult this year, hopefully by the time the student graduates the credit crunch will have eased. These options not only lower payments, but improve the borrower's credit rating as the original loans are paid off.
The thing that students must be counseled on is that default is not an option. Simply not paying your student loans will ruin your life, especially since Congress has decreed that private college loans are just as sacrosanct as the federal ones.
<a href="http://www.collegeloanconsultant.com">collegeloanconsultant.com</a>
while you mentioned the issues of bankruptcy, you did not mention the fact that the loan comapies are allowed carte blanche in regards to predatory lending and that the governmnet has allowed them to do this to consumers with out any recourse..........
student loans are the only loans in this country in which all consumer rights have been removed.
the government must re-instate consumer rights in this respect, and penalize the banks and lenders who are harassing consumers. some to the point of taking their own lives...........
all the people in particular who have had bankruptcies and had loans outstanding in particular for ten years or more....
obviously can't pay them back- no matter how much they may have intended upon doing so.......instead of beiing releaesd....they are kept on the system whilst the loan interest goes up and up every passing year to a point
that is absolutely ludicrous-the government has given these institutions the right to garnish wages,up to 90%
to take tax return money,to take in fact 25% of a persons social security money........even if you have to go into bankruptcy- your student loan is the only thing that is not forgiven....and IT SHOULD BE!
where does it stop here in this country that the consumer no longer can have deserved protection......isn't that unconstitutional????
because of what the government has alllowed these lending institutions to do- we are all the walking dead.......
Lets face it, the problem is more than the student loans. The biggest problem is the contract itself, and how it is presented to students. Even the Governments own congressional testimony has shown that most students are not given full disclosure, which is a requirement for a contract to be valid.
That and all the pressure to get a college education. The crazy thing is this: I know people who have never gone to college that are smarter than some of the college graduates that I also know.
So the question of "is it going to be worth going into debt for a very long time" needs to be asked? These kids (and kids of the past) are banking on a bigger and better economy where they will be able to get good paying jobs, the kind that will allow them to pay off their loans and still live a halfway proper life style. Its a sad fact that many of them are finding out the jobs they hoped would be there when they graduate, are not. And then the real troubles begin.
The US congress has known about these problems. US congressional testimony from as far back as 1975 shows the US department of education knew about problems with some of the schools, and that these schools were misleading kids, getting them to sign up for student loans, knowing the kids would probably never be able to pay them back. And yet the first real reform changes did not occur until the mid 1990's, and then only after a record number of defaults, and a record number of bankruptcies were filed at the end of the 1980s.
Whose to blame for people not being able to pay back their loans? I think the blame goes all around equally, to the schools, the congress, the department of education and the students themselves.
Take my advise: if you need to get a loan for college, you don't need to go to college. It will be to your advantage in the long run, if you do not take out any student loans.
Contrary to what most "loan consultants" say:
Default is sometimes, and more often, the ONLY option. But not willingly so. Especially after a loan company, such as Sallie Mae, has sabotaged your credit rating, raised your interest rate by over 3X and more than tripled your principal when you can't pay more than half your income to them in a little over 2 years.
I had a score over 800 4 years ago. Went to school, and now I am less than 500. All due to Sallie Mae. They approve one loan account (calling it a "Loan") and for the amount they "approve" you for they open separate loans under the one account, each time hitting your score and lowering it for every disbursement to tuition and other school expenses. This raises your "credit risk" and allows them to inflate your overall interest sky high.
My payments were to be no more than $450 at 9% interest (APR) and by the time I was done with school they ballooned that to over 27% and $1250/mo.
Not a single company on Earth will let me "consolidate". Even outside of "credit crunch" times. Worse yet, Sallie Mae and their predatory collection practices keeps me out of work and in a position where I have no choice but to default.
You try paying on a loan that is now over $1700/mo (more than half my paycheck at the last job I had before I was laid off) and having to deal with 20-30 calls per day to both your pre-pay cell phone (nope, I don't get a regular cell phone now either due to Sallie Mae) and your place of work and your bosses/co-workers.
As we speak, I type this at a library. I am homeless and living out of my '97 ford explorer that I got very used at auction.
So curse you, and this mamby pamby article for dancing around the REAL issue. Student Loan companies are supremely predatory and that includes "college loan consultants" as all they want to do is get you tied up (if even at all possible now) with another loan company to abuse you. Which will probably be either associated with Sallie Mae or bought by them in a year or so anyway.
VOPS, fully agree. I wish I knew this 4 years ago. But I had High School, and previous education in college, telling me this is the thing to do. Also, I didn't know at this time Sallie Mae was privatized and no longer a part of the government. Their papers looked exactly the same as it was when I first went to college years back (I went to retrain into another industry 4 years ago) and they sell it as a "Federal guaranteed loan" and I now know that it was a reversal of the words "Guaranteed" and "Federal" that made all the difference. Where one is a part of the government, and one is simply "guaranteed" for a big payoff from the government, once they force you into default. They now have no incentive to ever allow you to pay when they get their money anyway, plus everything you own after they force you to default.
Ashley Luthern, I do not know why you left out so much more of what goes on. What you reported has been reported before. Leaving out the abuse and the total imbalance that has been created by the student loan sharks. You talk a little about not having any bankruptcy protection, but again that has been talked about before. Never going to the root of it and talking about all of the other total lack of consumer protection there is.
Guess what? I sure as hell have severe hardship. I wasted my last dollar that got me evicted from my home to sue for hardship exception to no avail. The judge barely even took a look at the case. Regardless of the prepared testimony from a previous employer swearing that I was terminated due to the harassment from Sallie Mae and that the employers business interest was to treat me almost like a drug addict and would be a risk to be around their equipment in the case I might steal it to sell just to pay this loan.
I have even worked, in the past, with Congressman Patrick Murphy, had dealings with the staff of Harry Reid, and even tried to have my story told (with documented proof) of whats been going on to the Wall Street Journal. All of them, at the last minute, opted to not help or leave me, and many others stories out.
I am pretty sure you talked to a lot of people for this article too, and just like the others it seems you avoided the root of all this. That's why this article seems so much like all the others. A lot of nothing. Thanks for trying anyway, now I have to finish typing this because my time is up on the library computer. I need to see if I can somehow eat something tonight. But perhaps not.
While basically a good article, it says NOTHING about those of us who were, and continue to be, duped by Sallie Mae. If you REALLY want to understand the REAL issue, continue reading:
I’m hardly a deadbeat and I currently earn a decent income. Sadly, I have medical bills that insurance doesn’t take care of, so what excess income I do earn goes to pay medical bills. I have no family to support me. I do not own property. I haven’t had a vacation in over 15 years.
I, like so many others, did not default on a loan for frivolous reasons, unless you consider a brain tumor and no medical insurance at the time frivolous. I was out of work for a long time and once I could go back, the industry I work in was laying off. Sallie Mae recognized the unemployment and even seemed sympathetic - once. Before I could even start to get back on my feet Sallie Mae hit me with capitalized interest, late fees, and unbelievable penalties.
My original loan was for $24870. For the past six years I have paid a little less than $500 a month. At this rate I will have paid off the loan in the year 2022. By that time they will have collected $91749 from me [if I don’t die from Sallie Mae-induced hypertension before then]. This is according to THEIR calculations. That’s almost $67000 profit.
Let’s look at it another way: In the year 2007 I made 12 payments that totaled $5095. After those payments were applied, my account balance was reduced by a mere $845.
They will not allow me to remake the loan as it’s already been consolidated. This means that I am stuck with a fixed interest rate of 8.25.
Do you see something wrong with this picture?
I think in fairness to your readers you owe them the truth.
It doesn't matter who the lender is, who does or doesn't guarantee the loan, how carefully the contract is read or even whether the loan is paid or not. If one of the Department of Ed's loan shark collection agencies goes trolling for and finds records of loans more than 10 years old, at which time it's impossible to obtain records of payment from most financial institutions, they garnish your wages. Whether you owe the loan or not. And in my case anyway, they don't even take the trouble of informing you before the garnishment begins. Seems our government agencies think due process, like habeus corpus, is a right no longer guaranteed by our Constitution. The Dept of Ed hands over stacks of presigned documents giving their contracted collection agencies the authority to garnish wages at will. I have a letter signed by the VP of Sallie Mae Servicing Corp stating that I do not owe on my student loan from 1989 and have sent copies of that document to 17 offices of the Dept of Ed, my Congressman and Senators and 3 states' Attorneys General and my wages are still being garnished by Progressive Financial Services of Tempe AZ, a company incorporated in the state of Pennsylvania. The Financial Student Aid office of the Dept of Ed held a wage garnishment hearing on my behalf more than one year after my garnishment began, after I filed 3 complaints with the FTC and Progressive shuffled my account between their Tempe AZ and Denver CO offices. I was informed of this hearing when I received a letter headed "Results of Wage Garnishment Hearing." Surprise! I lost. Don't know who represented me or presented my case.
So, Ashley Luthern, I think you should have done a bit more homework before writing your totally useless and uninformative article.
I don't know who the author of this article spoke to, but she in no way showed the true nature of what is going on.
Take my case for example. I borowed 6500.00 to attend a semester of school. I only would borrow one semester at a time. During this semester, I got sick, real sick. Think 4 months hospitilization..I filed not 1,2 but 3 sets of medical deferment papers..guess what?..all 3 sets were "lost" and I was put into immediate default, but not on the 6500.00, Good 'ol Sallie May said I had borowed 13,000. All requests for a statement, financial records went unanswered. This was 12 years ago and it has been a constant fight ever since. Over 6,000 dollars worth of tax returns were taken and just "Disappeared", meaning they were NOT applied to my balance; Also, I was told that any payment less than 750.00/month was unacceptable; they would take nothing less.
I chose nothing
My curent "balance" on my "account" is well over 30,000 dollars and grows by the year..sometimes The number evenn goes DOWN, as if the number is simply pulled out of thin air, as I said, all requests for a statement have fell upon deaf ears. I have written myn Congressman, and was told by his assistant to, in effect, just shut up and pay your bills...a sure sign the fix is in, so I do not expect any relief from my government
Perhaps Mrs Luthern should have done a bit of research before picking up her pen. The press and their ignoring of the subject is a huge part of the problem....
For more information about how to combat these loans, check out http://www.collegefinance101.com