Understanding Student Loans avoiding Student Debt and Predatory Lending
Each year so many children prepare for the new chapter in their educational journey as they enter college. They worked for 12 years to get to this point so it should be a time of great exploration. For some, this will soon become the start to their financial ruin the minute the door opens.
How you ask? It comes in the form of student loans and seriously misguided advice and guidance from their teachers, school admins and family.
Most children at the age of 17 or 18 do not have the financial resources to afford their continuing education unless somehow their parents and family are well off. This means to continue their education they will need to take a loan that can be anywhere from 20,000 to hundreds of thousands. Knowing what they have in forms of resources to pay the loans back is where the guidance and planning from their teachers, counselors and family come into play.
Before any child applies for their loans and grants they should have a clear plan of what to they want to be, what degrees are necessary, and classes are necessary to get that degree. They should try to spend as little time in college as possible so they can graduate and start repaying these loans, but the sad part is they don’t have this critical step in their planning solidified.
College is not the place to experiment as it’s a very expensive experiment if you do as som many students are finding out as they enter the work field.
If they have a profession in mind, the next step should be to get it as affordable as possible. So here are some things to consider.
Community College vs. University
A degree is a degree regardless if it comes from a community college or a university. Obviously a university looks more prestigious but it’s also more expensive for the same result. Maybe consider getting your prerequisites from a community or state college. They are cheaper, most cities have a main or satellite branch allowing you to live at home saving costs on room and board. When the mandatory classes are complete, now you can get your bachelors or masters degree from the university of your choice. I’ve never really seen a university reject credits from a state or community college that’s accredited. Some technical college credits may not transfer so do the research prior.
Is College Even Necessary?
You’d be surprised how many parents push their children to go to college when the child has no interest in college or has no business going to one. This forces excessive debt for that child that may be completely unnecessary. Just because a child isn’t interested in college doesn’t mean they won’t be successful. There are trade schools that train you to be an electrician, plumber, mechanic, nurse, general contractors and lots of other great professions most are fulfilled in 2 years not four, potentially saving money while preparing them for a career they will actually get a job in and potentially one day own their own business in the field.
Alternative Forms of Payment
Many colleges and universities and even your high school have resources to Pell Grants and public/private scholarships. These can help offset the large financial burden. Don’t be scared to apply to as manny as you can, sure you will get no’s but you will get some yes’s too.
Your plan should also include a reasonable profession in which you can make money on. Things like Performance Art, Gender Studies, Feminist Literature, Philosophy and others like this probably won’t yield you a job when you graduate, so is it wise to pursue these fields? If you do, understand that the only place you will work in those fields would be a professor, as they are not needed in the workplace. The only real benefit is it would prove to a would be employer that you accomplished something.
Have a 5 year plan when you graduate. Having an exit plan is critical as it forces you to list potential employers you can work for, that you can pursue while in school or intern with. Many interns get picked up as a full time employee when they graduate.
This plan should outline a student loan repayment plan. Yes loan payments are deferred till you graduate, but the interest is still compounding. Plan on making monthly payments while you are in college. The deferred interest is what kills most student loan recipients. If you take out a 50,000.00 loan, make no payments for 4 to 6 years, that’s 48 months of interest on the 50,000.00. Consider making payments towards principal only! This will break down the debt as interest is added to the principal amount. Four years of breaking down the principal loan amount will grant big savings and shorten the payoff time.
Save, save, save. Yes we want those fancy cars, the newest electronics but those don’t help with your loan. You should also refrain from taking out more loans, as the more loans you make the more you extend your paycheck having to pay more loans.
One last alternative is having a college savings plan. If you are planning to have a baby, you can establish for them an IRA, Annuity, High Interest Rate account that you add money to over the years to save for college. Gerber Life offers a fantastic college savings plan using insurance to grow your investment and have the money ready when your child graduates. This particular plan can be established when the child is 18. One advantage to college savings accounts is this, should the child decide college is not for them, the money is still theirs to use. That money can be diverted into a trust fund, rolled over into another annuity or IRA which can be used penalty free for medical expenses or purchasing their first home.
Student Loans
When you sign your name on the loan documents, you accept the terms and conditions of those loans. The loan is the bank’s fulfillment of the contract and the repayment is the good faith condition for the student. This is now the responsibility of the student to fulfill.
Trying to break this agreement based on the concept that the student took classes they can’t get a good paying job in post graduation is neither the responsibility of the lender nor the federal government. The money was lent for that student to pay for their education, if they took the wrong classes or pursued a degree that limits their ability for the workplace, that falls on the student. This is why proper planning is so important prior to signing that loan note.
There may be reasonable situations that could cause the note to default exonerating the lendee from paying it. That would be predatory lending practices. The definition of predatory lending practices is defined as “unfair, deceptive, or abusive loan practices where lenders impose predatory terms on borrowers, often targeting vulnerable, elderly, or low-income individuals. These loans feature excessively high interest rates, hidden fees, and structures designed to make repayment difficult, forcing borrowers into default, debt traps, or loss of equity“. If the bank would change the terms of the interest mid contract and its not written in the loan agreement and clearly noted, then you have a case. All loan documents are required to disclose any increase of interest, how much of the principal is paid per monthly reimbursement, how long it will take to repay the loan if the lendee only pays the minimum payment. It must disclose any deferred ballooning interest, etc. If you get a loan and the interest is 230%, that would be predatory as that interest rate would take a lifetime to repay the loan in full. These predatory loans tend to be payday loans, car title loans, instant loans up to $3000.00 cash, and other heavy marketed loan products. This is why it’s vital to understand the loan terms and read the fine print. If it’s disclosed and you signed while not understanding what you signed, the courts side with the lender as ignorance does not justify malpractice or fraud. Its a good practice to have a financial strategist, lawyer or someone who can dissect contracts go over these terms and make sure you clearly understand. Even the loan officers at the establishment providing the loan should be happy to explain these terms and conditions so you understand – it’s their job to do so.
Having a proper 4 or 5 year plan for your studies, and a financial strategy to help you save money, budget and make a dent in the loan to help offset deferred and compounding interest (if applicable) so you can be school loan debt free quickly is the best plan you can make. Find someone who understands your goals to help create this plan. You’ll be glad you did.
