The $550,000 Student Loan

• krambman

  

  fan_from_texas wrote: ... and rewarding people for refusing to balance the costs is a bad idea. ... I just don't like the idea of wiping the slate clean for people who made bad decisions.

  I couldn't agree more. This was the biggest problem with the mortgage crisis last year. The government went in and help everyone who had bad debt and who made poor decisions, but did nothing to reward those who made good decisions and who always made their payments on time (like my parents for instance).
  
  My parents paid for mime and my sister's college. We are both done with school now, and in total my parents have around $60,000 in students loans for our education. My dad currently pays around $5,000 a month on all of these loans. My dad has a great credit rating, has never defaulted on a loan, and has always paid his mortgage and bills on time. Yet, because others made poor decisions, my dad now can't get a home equity line of credit to consolidate the college loans. And here's the interesting thing, if he were to get the HELOC, the total amount of debt he has would be the same, but he would be paying less interests and therefore his monthly payment would drop dramatically (potentially by half). If he has been making payments consistently on time now, he'd obviously have no problem making a smaller monthly payment consistently on time, but the banks are much wearier about giving out loans now, so he get's screwed paying a lot of interest to a bunch of different lenders because other people screwed up. Doesn't seem fair.
• Con_Alma

  That could be terrible. Why wouldn't all private loans be structured for a payback of 20 years or less. If you don't pay, your credit will be damaged...although you still will lose the debt amount after 20 years.
  
  In that scenario anyone who paid accordingly to the terms may realize a higher interest rate due to higher business costs because of those loans not paid. In addition taxpayers would be impacted by potentially a government subsidy of some nature.
  
  Someone is going to pay and it's usually not the person who gained the greatest benefit.
• j_crazy

  

  I'm so glad I'm halfway done with my student loans.
  
  For the record I am the exception to the rule.
  
  I'm 24 (25 in June) I've owned 3 houses (currently own 2, 1 rental). I got married at 22 and had a baby at 23. I've paid off all of my debt except for the house (obviously) and about 1/2 my student loans. I've never carried a balance on a credit card. Also, I have enough money right now in either savings or 401k or stock that I could pay off the student loans and take my balance on the house to ~75k.
  
  Then again not many people my age get $100k jobs right out of school.
• darbypitcher22

  

  I read this article and didn't think much of it... now that I've seen some of the numbers you guys have thrown out there, and with me trying to get a GA job so I don't have to pay for Grad school, I'm really, really scared
• krambman

  

  j_crazy wrote: I'm so glad I'm halfway done with my student loans.
  
  For the record I am the exception to the rule.
  
  I'm 24 (25 in June) I've owned 3 houses (currently own 2, 1 rental). I got married at 22 and had a baby at 23. I've paid off all of my debt except for the house (obviously) and about 1/2 my student loans. I've never carried a balance on a credit card.
  
  Then again not many people my age get $100k jobs right out of school.

  What do you do?
• j_crazy

  

  petroleum engineer.
• fan_from_texas

  Con_Alma wrote: That could be terrible. Why wouldn't all private loans be structured for a payback of 20 years or less. If you don't pay, your credit will be damaged...although you still will lose the debt amount after 20 years.
  
  In that scenario anyone who paid accordingly to the terms may realize a higher interest rate due to higher business costs because of those loans not paid. In addition taxpayers would be impacted by potentially a government subsidy of some nature.
  
  Someone is going to pay and it's usually not the person who gained the greatest benefit.

  I don't know of any group that gives private student loans with a term greater than 10 years. Things were very different 3-4 years ago, but currently, it's impossible to consolidate down or stretch out payments (last I checked).
  
  I have no idea of the best way to handle this moving forward, as it sounds like an impossible situation. If you don't bail out young people, they're mired forever and will likely default at some point. If you do bail them all out, the taxpayer is on the hook for everything, and we'll hear lots of stories about Plastic Surgeon who makes a million bucks yet has Uncle Sam paying back his loans. Or, alternatively, about Jimmy who got a B.A, then a B.S., then a M.A., then a Ph.D, then another B.A., etc. in Basketweaving Sciences who owes $500k and doesn't want to work because he's experienced enlightenment, yet wants to have Uncle Sam pay his loans.
  
  That's why I think the most likely outcome is some combination of covering loans for "public interest" workers and "low income," as rife as that is with moral hazards. That's kind of how they already deal with student loan interest (not deductible for AGI over $106,000 or something like that, with various bonuses for public sector employees).