Ask Liz Weston » Student Loan

Why your student loan rates are high

lizweston — Mon, 14 Nov 2011 17:07:37 +0000

Dear Liz: My son has taken out college loans. He graduated this year and the loans are coming due. I am surprised to see that the interest rates range from over 6% on the federal loan to 10% on the others. Is there a way to refinance this since home loans are at record lows under 4%?

Answer: Mortgages are secured by a piece of property that can be sold if the borrower fails to pay. Student loans are essentially unsecured, although collectors can pursue borrowers until they die since there is no statute of limitations on this debt.

The 6.8% rate on federal Stafford loans may seem high in this low-rate environment, but historically it’s a pretty good rate for an unsecured student loan. What’s more, the rate is fixed — unlike rates on private student loans, which are variable and can rise to 18% or more.

Your son probably won’t be able to find a lower rate unless you become his banker. If you’re financially able, you could pay off the loans and then charge him 4% or so to repay you.

Otherwise, he should focus on paying off his private student loans as quickly as possible, because of the risk that the rates will climb higher. To free up more cash, he should consider consolidating his federal loans to get a longer payback period — 15 or 30 years instead of the standard 10 years — and thus a lower monthly payment. If his income is low and the amount he owes is substantial, he also should investigate the income-based repayment option on his federal loans, which could further lower his required monthly payment.

Finding a way to pay for school

lizweston — Mon, 31 Oct 2011 15:21:10 +0000

Dear Liz: What are some good possible resources for loans and other financing to pay for school? I am going back to school to try for my degree and I am pretty strapped for cash even though I work full time. Any suggestions would be appreciated.

Answer: Don’t go back to school to “try” for a degree. Go to get one. A college education is economically useless if you don’t get that sheepskin.

The financial aid education site FinAid.org is a great resource. You’ll find an “estimated family contribution” calculator that will predict how much you’ll be expected to pay for your education and how much financial aid you can expect. You also can learn about federal student loans, which are available to just about everyone and which have reasonable, fixed rates and numerous consumer protections, including income-based repayment plans. Try to avoid private student loans, which have variable rates and few of those protections.

Dealing with a Student Loan Nightmare

lizweston — Mon, 23 May 2005 20:08:59 +0000

Q: We have a huge problem that we’ve been trying to solve without success. We co-signed a $40,000 student loan for our eldest child and then had a serious run of bad luck. My husband was critically injured and out of work for a long period, we lost money in the stock market, and our son has had trouble finding a good job after graduation. A lawyer told us bankruptcy would help our situation, but it didn’t â€” the lender sued us and now we owe an additional $30,000 because of interest and fees. We hired a second lawyer, but he only made things worse. We make less than $50,000, don’t own a house and have old cars that aren’t worth very much. Our only asset is a retirement account worth $30,000. We have begged the collection agency for a repayment plan that we can afford, but our pleas have been ignored. We have two more kids to help with college and feel as if we are living in a nightmare. Do you have any hope for us?

Answer: You’ve discovered the modern reality of student loans: Once you’ve got them, you’re stuck with them.

A federal law change in 1998 made most student loans virtually impossible to erase in Bankruptcy Court. (The recent bankruptcy reform act tightened the law even further to include loans for education made by for-profit lenders.) Unlike most other secured debt, there’s also no statute of limitations on student loans. That means a lender can sue you decades after the loans were made. The statute of limitations on other debt is typically a few years.

All this means student loan collectors can really play hardball with debtors. You can’t run, you can’t hide, and the collection agencies monitor your credit reports so they can jump in if your financial situation seems to be improving.

You may be understandably soured on attorneys. But if your requests for an affordable repayment plan are being ignored, your best bet might be to hire another lawyer â€” one experienced with student loan debt â€” to deal with the collection agency. The National Assn. of Consumer Advocates at (202) 452-1989 or http://www.naca.net can provide referrals.

You probably need to give up on the idea of helping your other kids with college. Your priorities need to be paying off this debt and saving for your own retirement. You also need to get your oldest son to contribute his part â€” he’s the one who benefited from all this debt, after all.