The federal student loan program has received much press lately. On March 30, 2010, Congress passed the budget reconciliation bill. One of this bill’s provisions was to end the practice of subsidizing banks to originate student loans that are guaranteed by the federal government. Effective July 1 of this year, the federal government began issuing all student loans. According to the Century Foundation, a nonprofit public policy research institution, the expected savings is reported to be around $6 billion per year. This savings will be used to increase Pell Grants and to assist historically black and community colleges. Student loans were again in the news in August of this year when the U.S. Government Accountability Office (GAO) issued a report about deceptive and questionable marketing practices at for-profit or “proprietary” schools. The GAO sent undercover investigators to 15 schools. According to CNNmoney.com, investigators found that four of the schools investigated encouraged applicants to commit outright fraud. One school encouraged applicants to falsely claim underage dependents in order to qualify for Pell grants and student loans. The report found that students at for-profit colleges are more than twice as likely to default on their student loans than students from public or non-profit colleges. Only about 8 percent of all students attend for-profit or “proprietary” schools, but they command about 25 percent of federal loan funds and are responsible for about 40 percent of defaulted loans.
According to the U.S. Department of Education, nearly three-quarters of students who default on their loans do so after withdrawing from school and failing to complete their studies. This is significant because only approximately 27 percent of for-profit college students and only 26 percent of community college students emerge with an associate degree after six years. Students who fail to graduate are often faced with a crippling loan burden that cannot be discharged in bankruptcy. At one time, efforts to collect defaulted student loans had a 10 year limit. Congress has recently done away with this limit. This means unpaid student debt will plague you for the rest of your life. In a 2005 case, Lockhart v. United States, the Supreme Court ruled that the federal government could seize social security benefits to cover outstanding student loans.
So what is a student to do? In my case, I have decided to keep my student loan burden low enough so that if I do not get a job in the paralegal field when I graduate, I will still be able to make my student loan payments with my current salary. I have decided to work more and borrow less. Every situation is different, but using caution when taking out student loans is advisable.
What if you can’t make your payments when you graduate? Fortunately, there are several options, such as changing your repayment plan, requesting a deferment, or requesting forbearance. For more information, click here.
Find out here how much you owe on your student loans and what your projected monthly payment will be.
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Jane, you have posted some great information. I wish I could say I was surprised at the results of the undercover sting and for profit schools, but I am not. I know that their student loan programs have been under scrutiny for a while. I was surprised to read how low the percentage of students graduating with an associates is-do you know if the percentage is better with four-year schools? Nice job.
ReplyDeleteThe percentage is much higher at four-year colleges. I recntly read that 53 percent of college freshmen at four-year colleges graduate with a bachelor degree within six years.
ReplyDeleteI am very fortunate..and I think most of use are at Sinclair..not to have a huge amount of debt when we graduate. Luckily, my parents had set up a college fund for me. Unwisely, I have been school too long and that money has dwindled away with my passion for each major I change!! This is a big problem though. I read an article the other day that stated a woman who had $125,000 in student loan debt, was making $19/hr. and she still couldn't afford her bills with her loan bills. How sad!
ReplyDeleteThis is a great plan, because most college graduates have a hard time with repaying debts and spend all their hard years work of trying to get a degree in paying for these debts, when they finally get the jobs they have long awaited for
ReplyDeleteThis great information. We all have had to make decisions about how to fund our education and taking out a school loan has been an option that I have had to use. I too have been working on other ways to fund my education, like searching for a place of employment that offers tuition reimbursment and applying for scholarships. I will be transfering to Wright State after Sinclair and I was just looking at the difference in the cost. I am only planning to borrow if I really need to.:)
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