Warning to all college students: If you take a student loan now, it may be with you for longer than you intend.
The goal of attending your favorite school seems like it is a mere loan away, but do your homework: According to millions of college graduates, your dream could become a nightmare.
It’s hard to turn down immediate money when you’re entering the university system. However, if you don’t educate yourself properly, you could end up in a debt cycle that might possibly haunt you for 20 years — or longer.
Between 1986 and 1989, Devin (not her real name) took student loans totaling $20,000. She graduated in 1989 with a Masters Degree in Music and embarked on a career as a music teacher in a local central Florida middle school.
Despite an SOS call to Sallie Mae and the misguided advice that she should default and let the loan return to its source, ISAC, Devin’s loan has now ballooned to $57,000.
Her wages have been garnished and nothing — not even death — will get her out of paying this hefty, and annually accruing, bill.
Here are details of how Devin’s debt grew: She paid an upfront $1,000 in Loan Guarantee and Origination fees, what you must pay in case of default; $1,000 in late fees; $16,000 interest; and $14,000 in recapitalized interest charges, which enfolded into original total accrued and $4,500 in “other fees.”
At present, Devin has paid the original amount, but there is no way she will ever pay back this loan. Here’s why: The interest on the loan is increasing faster than the payments can be made.
According to a CNBC report “Price of Admission: America’s College Debt Crisis,” the Department of Education says the number of defaulted student loans has doubled since 2005. Loan companies may garnish wages, take Social Security and nothing can free the graduate of the loan-repeat nothing.
The report profiles a couple who, sadly, lost their son and were told that, since they co-signed the college loan, they were responsible for remitting the more than $80,000 bill.
It is true that back in the 1980s, student loans were available to any student in need of financial help. However, the pendulum has swung back and now students, like Devin, don’t stand a chance against the system.
Pell Grants, usually reserved for students with low to moderate-income, have been cut for those attending school in the summer. As for the financial fate of students enrolled this fall, only time will tell.
Normally if you owe money, you can get it forgiven through bankruptcy. Not the case with student loans. Each loan has a 9 percent interest rate for each unpaid year. That is before penalties. These rates would make a loan shark jealous.
While Devin digs herself out of the enormous debt she’s incurred, the student loan pendulum continues its arc. The question is: How long will the current economic climate support the rising student loan crisis?
The outlook is grim, to say the least. College debt will rise to over $1 trillion in 2012. If Devin were to pay the debt off, it would take 45 years and cost a grand total of $180,000.
“Most people have a house mortgage,” she quipped. “I have a mortgage on my brain!”…