Matthew Gates 15m 3,673 #studentloans
The views of this article are the perspective of the author and may not be reflective of Confessions of the Professions.
Crisis: Student Loans in Default
There has been an upsurge of college graduates or college dropouts recently claiming that they are thinking about letting their student loans go into default or have already gone into default. The student loan debt across the entire United States has risen well above credit card debt to a national average of over a trillion dollars and is expected to continue rising as more and more students go to college. The unfortunate reality is that college is far too expensive for most people, and rather than paying off their student loans as a regular monthly bill, they prefer to just let their student loans go into default.
When a student loan defaults, it means that the student has borrowed money for a period time, in which the lender has allowed for a grace period, usually while the student attends college, which may be up to 4 or more years, for which the student does not have to pay the loan back immediately. Afterwards, it is expected the student will begin making monthly payments to the lender, usually the bank, or sometimes even the government, who may buy the loan from the bank in order to collect the interest and the money on the loan.
The Lender Relationship
College and universities, nowadays, charge outrageous prices to attend and be considered a student. With those prices come administration fees, cost of housing, cost of food, and the cost of books. The majority of students, including their parents, could never actually afford to pay for college out of pocket. If students and their parents had to actually pay the costs up front, only the most richest individuals who could afford to attend a university could actually attend, and those who couldn’t afford it simply would not attend.
This is bad business for most colleges and universities, so the lender, often a bank institution, or a loan company will step in and offer to lend; lend as defined as something being given or granted, with the expectation that it will be returned, money to the individual to pay for what they want. This money is not often given directly to the student, but is paid directly to the university.
This money is lent with a lot of paperwork that must be signed in agreement that it is being lent and will be paid back when the student graduates. Unfortunately, this money never comes without strings attached, and interest fees are often added on to the total payment, in which the person who money is being lent to, agrees to pay back the original amount plus an interest fee that is charged for borrowing the money.
The signed paperwork is the standard of how business is done today. The individual agrees to pay back the lender, no matter what, unless, in most cases, the individuals becomes disabled and is not able to pay back the lender; or the individual becomes deceased. This is usually the standard for all forms of loans and credit.
Since the government, universities, and banks have such a tight relationship with each other, new laws have passed stating that bankruptcy is not an option. You cannot file for bankruptcy and have your student debt cleared. It will be with you until the day you die, unless you opt for a forgiveness program, which often requires that you work in a low-income neighborhood or an area where youth are at at-risk, and remain there for at least 7 to 10 years.
The upside of this is that your debt will be forgiven after that time, because working in such an area will not pay you a really affordable or living wage. The downside is that you could have probably gotten a job or several jobs in that time period, worked your way up, and paid your debt off faster, as working in new jobs affords you experience and new opportunities to develop your skills. The choice, of course, is up to you, and there are plenty of people who feel the need to go into impoverished neighborhoods to help and be a part of the community.
The political push has been for everyone to be able to afford and receive an education. Judging by the cost of college and the actual pay wages, no one can really afford colleges, so banks gladly lend this money to just about anyone and everyone in need.
The political campaign for everyone to go to college or the push for a college degree requirement by most jobs, has instilled that a college education is necessary in order to be successful in life, with plenty of charts and research taunting that a college degree can help earn an individual at least an additional million dollars or more in their lifetime.
They will never actually physically see this money, but over a lifetime, the money will have been made. The dream to make this money though has pushed many people to apply and attend college. Many people have the strong desire to go to college to make their dreams come true.
Whereas a house, a family, a good job were the American dream back in the 50s and the 60s, the new American dream is going to and graduating from college, at least with a 4-year degree. Unfortunately, college works the same way as the supply-and-demand economy. If there is too much of something, the price will go down, whereas if there is very little of something, the price remains high.
The huge influx of people attending college has driven the value of the college degree far below what the cost of the education is actually worth. In other words, no matter what college you attend, you are probably getting ripped off beyond your own comprehension of business standards. This is great news for colleges, banks, loan companies, and the government, as the demand has driven up prices and made for an extremely profitable business.
However, the consequences of driving false value into the minds of everyone has decreased the value of the degree immensely, specifically the value of Liberal Arts degrees, as the majority of people favor the Liberal Arts over the Science and Math degrees. There is still great value in Science and Math, with women having many great opportunities in such fields, as the majority of people have yet to obtain them. In other words, too many people have a degree in the Arts and not the Sciences or the Maths, thus these degrees have the lowest actual value.
With this drive to go to college, nearly everyone feels a sense of self-entitlement that they must and should attend college in order to be successful in life. Therefore, no matter what the cost is, and whether they can afford it or not, they will strive to make the college dream a reality.
Self-entitlement really comes with the expectation that if you go to college, you are going to graduate and get into your dream job making your dream salary. Expectations and reality are far from each other. If you are lucky, you might get your dream job or career on the first try, but the reality will probably be that you spend at least an additional decade of your life, working for a series of assholes, with back-stabbing co-workers, and develop some form of disgust for your job, even feeling miserable, and hating it, with the only amazing part of your day being when you lay your head on the pillow at night and going to sleep.
You are not special because you went to college and got a degree. I’m sorry. Reality check. You are unique, just like everyone else. Thousands of students are graduating every year with the exact same degree that you went to school for and the same or better GPA that you earned. You need to figure out a way to stand out amongst everyone else and show your true colors: What unique skills do you possess? What do you have to offer our company? Why should we pay you a starting salary and why should we give you a chance to work your way up in our company? These are all the issues you are going to face, with a college degree. The college degree did its job: It got you noticed and in the door for an interview.
Your personality will have to do the rest. Your motivation and passion for this specific field of work will take you even further. You may even begin to find yourself wondering whether your college degree had any value or if you even needed it. After all, a trained monkey could probably do your job, but they hired you.
The college degree got you noticed, in the door, and an opportunity for an interview. That is all it ever was supposed to do. You give it the value you want it to have. The rest is completely up to what you have to offer. The piece of paper offers nothing more than the acknowledgement that you studied for four years or more at a professional institution.
Drop the ego, leave the self-entitlement at home, and put on a smiling face, sunshine. You weren’t smart enough to make the next Facebook, Twitter, iPhone, fashion design, or some other miracle that changed society, so unfortunately, you have to get a job and go to work for a reasonable paycheck that will get you through your luxurious lifestyle.
Once an individual graduates college, not having to make any payments, they are given an additional six month grace period, to begin paying back their student loans, often having to pay as little as $60 a month, and deals can often be made with student loan companies to pay back less. Plans are also created to assist individuals with making payments, and could go as low as $20 to $25 a month.
Should college cost as much as it does? Probably not. Unfortunately, as long as students keep paying the prices they are paying for college, every university is going to continue to charge a fortune in tuition fees, administration feeds, room and board fees, and book fees. Like any business that wants to profit and function, the customer is expected to pay up front, though most students cannot afford to pay up front, so the banks and lenders pay the universities up front for the students.
Should banks lend everyone money? Probably not. The sad reality is that what trillions of dollars of debt in student loans means is that many people were a bad investment. Every bank lends money with the intentions of making some money off of the loan. If a student cannot pay back the money they owe, the government will initially cover the costs and pay the student loan corporations back what is owed and then take over to collect the money they owe, but the bank should have probably never lent money to the student in the first place. It was assumed through the contract and the initiative of the student to attend college and achieve their dreams, that they would pay the money back. Without the money, none of it would have ever been possible.
Are banks horrible institutions? Sometimes a necessary evil, you might believe, but like colleges, we are the ones who continue to fund them and keep them going the way they are, so as long as they can get away with it, they will. Especially with the interest rate they charge people to borrow money, but their unwillingness to give people a great interest rate when it comes to borrowing money back from the people (i.e the bailout, certificate of deposits, money markets, etc.). Go ahead and open up a Savings account and see how far that .01% interest rate gets you in life. They also charge you nowadays to hold your money if you don’t have Direct Deposit. Nonetheless, the bank did lend you money, and now you must pay the money back to them.
Students are expected to pay their lenders within a few months of graduating college, as the expectation is that they will get a job, any job, and begin making money in order to pay back what they borrowed. Unfortunately, not every student is willing to settle for just any job, and payback is not always immediate.
As long as the student pays a certain amount per month, most banks and lenders become more lenient, and getting into a fixed payment program or auto-billing may even reduce the interest rate by up to .25%, saving the student a few hundred dollars in interest rates in the long-term commitment.
Before I even get into discussing the reasons for defaulting, whatever they may be, I want to cut to the bullshit and say: If you default on your student loans, you are a little bitch. Grow the fuck up, be a responsible adult, and pay your damn bills.
I know, that was mean of me, and I was an asshole for saying it, but no one else is going to say it. I understand, you can’t pay your bills sometimes, but to feel like you are the only one in the world with that problem is a bit egoistic, isn’t it? We all got bills to pay and sometimes, we come up short for the month. I understand. It has happened to me a few times in my life, where I had to either call the company up and ask them if I could be a few days late on my payment until I got my paycheck to pay the bill, or simply just paid the additional fees and late charges added on to the bill. It happens, but eventually you work your way through it and come up with some money to send their way.
I know, it seems totally unprofessional of my article to call people who choose to default on their student loans a little bitch, isn’t it? But seriously, go ahead and default on your house payment. Don’t pay your rent. Stop making payments on your car or your auto insurance. Stop paying that cellphone bill. Internet? See how long you can get Internet without paying the bill. Go right ahead. Watch what happens. See how quickly your life changes because you decided to be a little bitch.
Now that I’ve said that, I understand that times are rough and tough and there are people who think that they cannot afford to make their payments on time because of all the other bills they have to pay. I suggest that you call the student loan company and discuss what your options are, and they will most likely work with you. You may have to skip a few luxurious outings, concert tickets, fancy dinners, or whatever else you don’t need to be doing in order to afford the college degree that you agreed to pay for, but find a plan that works for you.
You will eventually pay it down. How do I know you will? I did it myself with $40,000 of debt when I graduated. I deferred my student loan payments for 6 months, and deferred a few of them longer, but one loan company would not grant me forbearance for one of my student loans, so I had to make the minimum payments of $67 a month on them, and I was not working. I managed to take the little money I had in my savings account, and put it towards that, for about 6 months.
When I was finally able to get a job, I worked for $12 an hour for a year as a programmer, paying as much as $500 a month towards student loans. I finally was able to land two new jobs, making about $15 an hour, and began paying off at least $1000, sometimes even $2000 a month towards my student loans. Of course, I had other skills to offer, such as programming, web design, technical support, customer service, etc., so my skills were certainly in demand.
After almost 3 years, I paid the entire $40,000 of student loans back and remained debt free ever since. I had other bills including rent, car insurance, etc., but I was able to make it happen. There was a time where I thought I was never going to pay it off and it was going to last forever, but the more I paid each month, the closer I was getting to seeing an end. My exact situation is not ideal for most, as I was paying way above the minimum and maximum payments on my student loans, but I wanted to get the student loans paid off as immediately as possible. I did it and the day I made the last payment was as wonderful and exciting as the day I began college and graduated college.
The feeling of being able to pay back my lenders not only boosted my credit score, but my confidence level in regards to being able to own up to the fact that I borrowed money and paid back the entire thing. I felt like a responsible adult who borrowed money so I could afford my dream, and pay back those who helped fund my dream.
You should feel the same way. By letting yourself default on a student loan, you admit to companies that you are not the responsible adult they thought you could be. You let your future lenders know that they should probably lend nothing to you ever, because you are a high-risk. Some people are completely okay with having bad credit and collection agencies hounding them, as they feel they will not need it, and for them, that is great if they want to be seen as a delinquent individual who cannot afford to pay their bills, but for most other people, they want to be seen as a respectable individual who is responsible. If you really want to be successful in life and feel successful, own up to all of your debt and bills, and pay them off.
Your student loans will follow you throughout your entire life, at least 25 years, if you are on an income-based repayment program, and there is no escaping them. You are probably going to live long enough to pay them off, and if you don’t, than you really have nothing to worry about. I once thought that the government should abolish them and we should all get affordable college tuition, but it didn’t happen while I was paying it off, and there is far too much money in the business for the government to change policies regarding student loans.
The next best thing for you to do is own up to the fact that you borrowed money from someone or an institution and you must pay it back. How would you feel if someone borrowed a substantial amount of money from you with the promise of paying it back in a few years with interest, and then after a few years, they basically told you they could not and were not going to pay you back? I bet you would do all you could to get that money back. Own up to your responsibilities as an adult.
That very moment you decided to go to college and take out student loans is the very moment you decided you were going to become a responsible adult. Stop being a little bitch and pay your student loans.
The Aftermath of Defaulting On Student Loans
So what really happens if you default on your student loans? The skies clear up and you are free to go.
No, not really. Your credit score is already messed up because you now have delinquent payments, and these marks will be existent for at least 7 years after you have fully paid off the amount you owe back. If you can’t declare bankruptcy on it and there is no getting out of paying student loans, than that can only mean one thing: They, the student loan companies, or the collection agencies, will come after you to get their money anyway.
If they cannot get their money, they will pass it on to court system who will work with the IRS, or your bank, and garnish your wages, a wage amount they deem fit, and may not care how much they take from you, regardless of how little you make or how many bills you have to pay. Sometimes they will take the entire amount of your bank account, leaving you high and dry to pay all of your other bills, which just messes up your entire payment system, if you were paying your bills on time, and actually had your shit together.
You will be unable to get your money back, unable to change the amount that they take from you, and although you may be able to negotiate with the collection agency, every time you do miss a payment from then on, your credit score will reflect negatively and they will send another notice to your bank that they are garnishing more wages from you.
Not only do you still have to pay what you originally owed while you were busy playing hooky and crying like a baby for the past few years about your student loans, but massive interest still continued to accrue on top of what you owed. If years have gone by since you made your first payment, your interest was already accruing while you were still in college.
Welcome to real life and the real world. It does get better, but only you can make it better. Pay your bills. Avoid the mess you would have to deal with by defaulting and take responsibility for your own actions. You will be a better person for it and you will have a lot more confidence, especially in knowing your credit score is in good standing. You will also have the feeling of financial freedom, the feeling of being debt free, which is just one of the many great experiences you will ever know.